When Harrah's Entertainment purchased Showboat, Inc. in June of '98, more than likely inadvertently, it bought its way into the online gaming industry. Thursday it sold its way out.
Along with the purchase came a 24.6 percent ownership interest in Star City Holdings, the Australian company which owns 85 percent of Star City Casino in Sydney and, incidentally, is setting its sights on establishing an Internet casino. Now, less than a year later, Harrah's is selling its portion of the company to TABCORP Holdings Ltd.
The fact that Harrah's has thrust itself into the spotlight as an advocate of responsible gaming makes the company incompatible with Star City, to say the least. Harrah's Vice President of Communications and Public Affairs Ralph Berry maintains, however, that the decision to sell was strictly based on looking for the best value for the companies stockholders. "The rationale for the sale is that Star City was not a strategic asset for us," Berry explained. He did acknowledge that Harrah's is not interested in online gaming, citing that they aren't comfortable with the current regulatory controls to ensure integrity and block underage gambling.
Harrah's current interests in the Star City Casino consist of:
- 135 million ordinary shares of Star City Holdings, representing 24.6% of the outstanding shares of Star City Holdings;
- Options to purchase an additional 37 million ordinary shares of Star City Holdings; and
- The company that owns 85 percent of the company that owns the management contract for the Star City Casino.
Harrah's has agreed to sell to TABCORP for cash:
- Approximately 110 million ordinary shares of Star City Holdings at A$1.60 (approx. US$1.03) per share;
- Harrah's interest in the Star City management contract for A$204 (approx. US$131) million; and
- A portion of Harrah's options to purchase additional ordinary shares at a per option price based on the A$1.60 per share offer.
In addition to the purchase arrangements detailed above, TABCORP has agreed to contract with Harrah's for certain services for which TABCORP will pay Harrah's approximately A$7 (approx. US$4.5) million annually for three years. In certain circumstances, the amount could be increased to A$10 (approx. US$6.43) million annually.