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Harrah Rolls Dice On Rio Casino

In a further sign of consolidation in the gaming industry, Harrah's Entertainment said Monday it's buying Rio Hotel and Casino in a stock and debt deal valued at roughly $826 million.

Harrah's is acquiring Rio's stock in a one-for-one swap based on Humana's Friday close at 20 1/8. Rio's stock ended 11 percent higher Friday at 18 7/8 ahead of the news.

The deal also includes Harrah's assumption of Rio's debt, last valued June 30 at $308 million. The deal gives Harrah's the 13th largest hotel in the world. Moreover, Harrah's said it would add Rio's 1.3 million customers to its own database of 8 million.

"This alignment provides a platform on which we will able to exploit unique strategic opportunities," the companies said.

After a stretch of torrid growth in the industry, many observers expect leading gaming companies to begin buying up their smaller rivals.

Weaker gaming stocks have added to the expectation of consolidation. The CBOE gaming index is hanging just above its 52-week low.

The growth has left many smaller gaming companies with access to a lot of capital, and larger companies are looking at strategic moves, Harrah's CEO Philip Satre indicated on CNBC ahead of the opening bell Monday.

"This industry is going to consolidate," he said. The Rio gives Harrah's access to a different kind of Vegas client. Harrah's customers tend to come from the East Coast, Midwest and Northern California, while over 50 percent of Rio's customers come from Las Vegas and Los Angeles, the companies said.

Combined, the two are estimated to have 1999 revenues of $2.9 billion. Harrah's expects the deal to add to earnings in its first full year.

Written By Emily Church

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