Park Place Bets On Caesars
Starwood Hotels & Resorts agreed to sell Caesars World Inc. for $3 billion in cash to Park Place Entertainment Corp., as part of a plan to focus more on its hotel business.
The companies, Starwood (HOT) and Park Place Entertainment (PPE) said they expect the transaction to close in the fourth quarter, subject to certain conditions and regulatory approvals.
The assets sold include the Caesars Palace hotel in Las Vegas, Caesars Atlantic City, Caesars Tahoe, the Glory of Rome riverboat in Indiana and the Sheraton Casino & Hotel in Mississippi.
"It's a highly positive transaction for Starwood," said Jamie Handwerker, an analyst at ING Barings. "The company is eliminating volatility and slower growth by transforming itself into a pure-play full-service hotel company," Handwerker said.
Nonetheless, Starwood shares slipped 7/8 to 34 1/8 in recent trading, while Park Place Entertainment shares climbed 1 3/8 to 10 1/2. Starwood shares have gained 20 percent in the last month, Handwerker said.
The sale also includes the management of slot operations at Dover Downs Racetrack in Dover, Del., and various other joint venture, real estate and management contract interests at properties in Nova Scotia, Canada, the Philippines and South Africa, Starwood said.
Starwood is the world's largest lodging company, with more than 680 properties in some 70 countries. The company operates, manages, and owns hotels, casinos and resorts.
Its 1998 purchases of the Westin hotel chain and ITT, parent of Sheraton hotels and owner of the Caesar's Palace gaming locations, cemented the company to its position.
Starwood also owns Hilton, Marriott and other properties. It recently unveiled its trendy W Hotels brand, which is aimed at younger professionals.
"Over the past several months, it became increasingly clear that it would be best for our company to focus on our core global hotel business," Barry Sternlicht, chairman and chief executive officer of Starwood said in a statement.
"The volatility of the high end of the gaming business and the requirements of the business for major ongoing capital investment were key to our decision to sell Caesars," Sternlicht also said.
Starwood said it plans to use proceeds from the sale to pay down debt, strengthen its balance sheet and significantly reduce its cost of financing.
"As a result, we continue to make progress towards our goal of achieving an investment grade rating," Sternlicht said.
The sale will enable Starwood to pay off a significant portion of its $8.4 billion in debt, Handwerker said.
The sale excludes the Desert Inn in Las Vegas. ING Barings' Handwerker said that property will be sold separately. She said the property could be worth as much as "several hundred million."
Park Place, the world's largest gaming company, also said the purchase was part of a strategy. The company, once a subsidiary of Hilton Hotels, was spun off from ilton in 1998. It has gambling operations in the U.S., Australia and Uruguay.
"The acquisition of Caesars is strategic in that we obtain an internationally recognized brand name and a portfolio of premier gaming assets," Arthur Goldberg, president and CEO of Park Place, said in a statement.
"These assets enhance our geographic diversification by providing an immediate leadership position in Indiana, the fifth largest gaming market in the United States, and by broadening our international presence with additional interests in Canada, the Philippines and South Africa," he also said.
Park Place also said it expects the acquisition to add to its earnings in the first year.
Starwood said it will have sold about $6 billion in assets since Feb., 1998, a "significant portion" of the price it paid for ITT.
Through subsidiaries, Starwood owns and leases 172 hotels and operates the St. Regis/Luxury, Westin, Sheraton, Four Points and W hotel chains.
Written By Stephanie O'Brien, CBS MarketWatch