Casinos Giant Harrah's Sees
New Home for Real Estate

In one of the first clues to its long-term plans, casino giant Harrah's Entertainment Inc. said in a regulatory filing that it plans to split off its vast real-estate holdings into one or more subsidiaries by the time its acquisition by two private-equity firms is completed.

The Las Vegas-based casino company also disclosed the expected news that Gary Loveman, current chairman and chief executive, would continue in the role of chief executive once the company goes private. Upon the close of the deal, Mr. Loveman also stands to make $93.9 million, the value of his vested and unvested options and restricted stock that will be converted to cash. Mr. Loveman is expected to make an equity investment in the new private entity, though the proxy filing with the Securities and Exchange Commission didn't specify how much that might be.

The company expects the deal to close in late December; depending on how quickly executives at the buyers, Texas Pacific Group and Apollo Management LLC, can obtain the necessary casino licenses from each state where Harrah's operates. Through a spokeswoman, Mr. Loveman declined to comment.

Dividing real-estate assets from the operating company is a concept that gained traction in the hotel industry more than a decade ago, and many major casino operators -- including Harrah's rival MGM Mirage -- have explored it more recently. Complex issues surrounding valuation and strict casino regulatory issues have kept gambling operators from executing the move until now.

By separating the two, Harrah's new owners believe they could more easily partner with developers on future projects without necessarily requiring the development partner to undergo the time-consuming casino-licensure process, according to a person familiar with the company's thinking. It would also be possible to sell individual properties to developers in the same manner, while Harrah's retained long-term management contracts.

Harrah's management first explored splitting the company's vast real-estate holdings into its own entity as early as last January, when Mr. Loveman engaged in talks with private-equity firm Texas Pacific, according to the filing. Those talks were disclosed to the board by last February, and by April the talks were called off.

In August, both Mr. Loveman and Charles Atwood, Harrah's vice-chairman, had begun separate talks with Apollo and Texas Pacific regarding a leveraged buyout. At the end of that month, Mr. Loveman "advised one of the non-management members of our board of directors that preliminary private-equity discussions were taking place," according to the filing.

Once the two private-equity firms had joined forces and made an initial all-cash bid of $81 per share Sept. 26, the company began courting additional bidders. The only firm to publicly emerge with a second bid was regional casino operator Penn National Gaming Inc., of Wyomissing, Pa.

Meantime, investors in both the equity and options markets have been jittery in recent days with a belief that another firm could make a run for Harrah's and top the current $90-a-share cash offer. On Friday, shares of Harrah's were up 38 cents to close at $84.95 in 4 p.m. composite trading on the New York Stock Exchange. No likely candidates have emerged, however, and any concern not already licensed to operate casinos would be forced to undergo the extensive licensing process.

Email your comments to rjeditor@dowjones.com.