Dividing real estate from operations began in the hotel industrya decade ago. For casino operators, the separation is decidedlymore complex in part due to their strict regulation. One possiblebenefit of the division is that owners of the real estate might nolonger have to endure the state's lengthy licensing process becausethey would not also be operating the casino. If that turned out tobe the case, it would allow Harrah's to sell off its real estatewhile retaining long-term operating contracts.

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Harrah's initial consideration of splitting real estate fromoperations occurred during the first quarter of 2006, according tothe regulatory filing. The company "met and had various exploratorydiscussions with representatives of [Texas Pacific Group] regardingthe feasibility and potential value of separating the company'sreal estate assets and business operations into separatebusinesses."

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In April 2006, the company determined it would not proceed withimplementing a PropCo/OpCo structure and the discussions wereterminated, according to the filing. A few months later, in August,company executives were in talks with both TPG and Apollo regardinga leveraged buy-out, and discussions the division of property andoperating components was back in play.

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In the SEC filing, the company says that on or prior to theclosing of the merger, "the surviving corporation will likelyimplement an 'OpCo/PropCo' structure such that the [propertycompanies] will be owned by one or more intermediate subsidiariesof Harrah's, as will operating companies that will operate theassets of the [property companies]."

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In addition to the PropCo/OpCo structure plans, the filingrevealed that Harrah's current chairman and chief executive GaryLoveman would continue in his role after the buy-out. It alsorevealed that Loveman's upside from the buy-out would beapproximately $93.9 million, which is the estimated value of hisvested and unvested options and restricted stock that will beconverted to cash in the transaction. Loveman is expected to takean as yet undisclosed equity position in the new privateHarrah's.

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