Dividing real estate from operations began in the hotel industry a decade ago. For casino operators, the separation is decidedly more complex in part due to their strict regulation. One possible benefit of the division is that owners of the real estate might no longer have to endure the state's lengthy licensing process because they would not also be operating the casino. If that turned out to be the case, it would allow Harrah's to sell off its real estate while retaining long-term operating contracts.

Harrah's initial consideration of splitting real estate from operations occurred during the first quarter of 2006, according to the regulatory filing. The company "met and had various exploratory discussions with representatives of [Texas Pacific Group] regarding the feasibility and potential value of separating the company's real estate assets and business operations into separate businesses."

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

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

In addition to the PropCo/OpCo structure plans, the filing revealed that Harrah's current chairman and chief executive Gary Loveman would continue in his role after the buy-out. It also revealed that Loveman's upside from the buy-out would be approximately $93.9 million, which is the estimated value of his vested and unvested options and restricted stock that will be converted to cash in the transaction. Loveman is expected to take an as yet undisclosed equity position in the new private Harrah's.

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Harrah's To Split Real Estate, Operations

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