Private equity firms offer $15bn for casino giant

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Harrah's, the owner of America's largest casino and the company on the verge of buying UK-listed London Clubs International, is in talks to be taken private in one of the biggest private equity deals in history.

The company said it had received a $15.1bn offer from Texas Pacific and Apollo Management, marking the first time that private equity's powerful players have set their sights on the casino industry.

The announcement appeared to have been forced on the company after news of the talks leaked and its shares soared. A deal could come later this week, although it added that the company "has not determined that a transaction is in the best interests of Harrah's and its stockholders or that Harrah's should not continue as an independent public company pursuing its business plan. Accordingly, there is no assurance that Harrah's will enter into this or any other transaction."

A committee of independent board directors will rule on the bid, which will allow the existing management to shake up the business away from Wall Street, which has pushed Harrah's shares below those of their peers in the past year. The company has been slow to move into the Asian market, preferring instead to move upmarket in the US, last year buying Caesar's Palace in Las Vegas, the biggest casino by revenues in the US.

Harrah's agreed in August to pay £279m in a 125p-a-share takeover of London Clubs International, which operates six casinos in the UK and has won licences for six more. LCI has also said it will consider bidding for the licence to run the UK's "super-casino" when that is put out to tender.

The takeover by Harrah's was approved by the Office of Fair Trading yesterday.

LCI shares slumped 11.5p to 123p, because the private equity bid for Harrah's was seen as ending hope that the US company would improve its offer. LCI's biggest shareholder, the Malaysian casino conglomerate Genting, had not yet indicated whether it would accept the 125p offer, and hedge funds had been betting on a higher takeover price.

The acquisition of Harrah's by Texas Pacific and Apollo would represent another milestone for the private equity industry, which has so far shunned the ownership of casinos because of the complexity of regulatory issues and because occasional winning streaks by customers can make earnings volatile. At $15.1bn, the deal would be one of the top 10 biggest leveraged buy-outs.

Cheap debt and an inflow of cash from pension funds and other investors looking for above-average returns has multiplied the power of private equity in the past few years. The record for the largest leveraged buy-out, long held by the takeover of RJ Nabisco, looks set to be toppled by the impending $33bn acquisition of the hospital chain HCA, announced in July.