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Posted At : August 15, 2008 11:25 AM | Posted By : D McKee
Related Categories:
Wall Street,Harrah's,The Strip,Herbst Gaming
Apollo Management Group is putting a brave face on a massive writedown in the value of Harrah's Entertainment. Which, like, totally explains why it snuck the news out the side door by dint of announcing it via subsidary Apollo Alternative Assets, which -- according to the Financial Times -- trades on the Amsterdam market. Yeah, dump the news over in Europe; nobody'll notice.
Right?
Wrong. And if you read to the end, you'll see that Apollo really knows how to pick 'em: Realogy, Countrywide, Linens 'n Things. I've seen kennels that had fewer dogs in them. The Daily Telegraph reports that co-owner Texas Pacific Group "is believed to have written off a similar amount," bringing the total writedown to $600 million.
"The gaming industry has attractive long-term fundamentals," argues Apollo bigwig Josh Harris, "and we believe we acquired a leading company in the industry."
Yes, it does, and yes, they did. Neither of which means that Apollo or TPG has evinced any long-term strategy for Harrah's other than sweating Diamond members' comps. Hunkering down and retiring debt is prudent but begs the question of why Apollo/TPG made the deal in the first place.
Curtains for Herbst? Losses at Herbst Gaming increased 44X over this time last year, as the company's ill-advised purchase of three Primm, Nev. casinos continues to be a millstone around the company's neck. (Ongoing erosion of slot-route revenue isn't helping, either.) Herbst wrote off any "goodwill" -- which in my experience is Wall Street-speak for "imaginary value" -- associated with the Primm troika.
A source familiar with Herbst told me last winter that the company had no experience that prepared it for the Primm market and thus didn't have a business model for exploiting it. A sale of Herbst Gaming remains on the table, but as always the $64K question is, Who's in a buying mode?
Hooters gets a lift. The orange-hued casino had a profitable quarter, believe it or not. Management credits staff reductions and other economy moves for the turnaround (meaning that a casino known for poor service and minimal amenities is probably getting worse). But I strongly suspect that a $5.5 million breakup fee from will'o the wisp suitor Hedwigs Las Vegas Top Tier made all the difference and Hooters will be back in the red or maybe breaking even next quarter, depending on just how bargain-hungry the market is.
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