Dec. 19 (Bloomberg) -- Harrah's Entertainment Inc., the world's largest casino company, accepted a $17.1 billion offer from Apollo Management LP and Texas Pacific Group in the fourth- biggest private-equity buyout ever.

Harrah's investors will get $90 a share in cash, the Las Vegas-based company said in a statement today. Including the assumption of $10.7 billion in debt, the transaction is about $27.8 billion. Harrah's, which owns the Flamingo and Caesars Palace casinos, expects the deal to be completed in one year.

Apollo and Texas Pacific were attracted to Harrah's cash holdings that will be used to pay the loans financing the purchase. Harrah's casinos generated $1.08 billion of cash this year through September, almost double the 2005 total.

``You think of Harrah's, it's a big elephant that takes the whole tribe to bring down,'' said Joseph Weinert, editor of the Gaming Industry Observer, a trade publication in Atlantic City, New Jersey. ``This outfit apparently had some big guns.''

Harrah's said Oct. 2 the buyout firms initially offered $15.1 billion, or $81 a share, a bid later raised to $15.5 billion, or $83.50 a share Oct. 11.

Shares of Harrah's rose 14 cents to $82.32 at 4:07 p.m. in New York Stock Exchange composite trading. The $90-a-share offer is 35 percent higher than Harrah's closing price on Sept. 29, the last trading day before the initial bid was announced.

Harrah's Properties

Harrah's owns 42 casinos in eight states and operates four U.S. tribal casinos and one Canadian property. Overseas, it owns 11 casinos in Egypt, South Africa, the U.K. and Uruguay and is opening locations in the Bahamas, Slovenia and Spain.

If the deal is completed, Harrah's, which began as a Reno, Nevada bingo parlor in 1937, won't be publicly traded for the first time since 1990.

``Given the amount of cash flow we have, it really isn't necessary for us to be a public company,'' Chief Executive Officer Gary Loveman said in an interview. Loveman said the offer from Apollo and Texas Pacific was unsolicited.

The deal may take as much as 18 months to complete as the new owners apply for gambling licenses where Harrah's does business, said James Hardiman, an analyst at FTN Midwest Research Securities in Cleveland.

In the event regulatory approval takes longer than 15 months, Apollo and Texas Pacific will pay investors an additional 2 cents a share for every day past March 1, 2008, until the deal is completed. Harrah's also has 25 days to find a superior offer.

Penn National Gaming Inc., a casino company with one-fifth Harrah's market value, had teamed with hedge fund D.E. Shaw and Co. to bid $87 a share in cash and stock, the Wall Street Journal reported last week.

Buying Cheap

At $90 a share, Texas Pacific and Apollo would be paying less for Harrah's earnings than what Las Vegas Sands' or MGM's profits are worth on the stock market. Harrah's is being valued at 21.4 times projected 2007 earnings, based on the average estimate of 18 analysts surveyed by Bloomberg. That compares with a 23.1 ratio for MGM Mirage and 51.5 for Las Vegas Sands Corp., according to Bloomberg data.

The value of the global casino market, based on the amount won by companies, may reach $67.4 billion this year and will rise to about $89.3 billion by 2012, according to West Bromwich, England-based Global Betting & Gaming Consultants.

Private-equity and management-led takeovers have reached $695 billion so far this year, according to data compiled by Bloomberg.

Harrah's would be the fourth-largest ever including debt, behind Blackstone Group LP's $36 billion current offer to purchase Equity Office Properties Trust; the $33 billion acquisition of hospital company HCA earlier this year by a Kohlberg Kravis Roberts & Co.-led group; and KKR's $30 billion takeover of RJR Nabisco Inc. in 1988.

Record Funds

Leveraged buyout funds have raised a record $170 billion from January to the beginning of October, according to London- based Private Equity Intelligence Ltd.

New York-based Apollo Management founding partner Leon Black was the former co-head of corporate finance at now-defunct Drexel Lambert Inc., the top underwriter of high-yield corporate debt before the firm collapsed in 1990. Black, 55, founded Apollo Management that year and has since made equity investments of more than $16 billion.

Texas Pacific created the world's second-biggest buyout fund this year, raising $15 billion.

The Fort Worth, Texas-based firm has raised more than $28 billion through six funds in the 14 years since it was founded by David Bonderman, James Coulter and Bill Price. It has invested in about 75 companies, including Burger King Corp. and Continental Airlines Inc.

Harrah's posted $236.7 million in net income on $7.1 billion in revenue in 2005.

Development Plans

The company had planned a multibillion-dollar redevelopment of its Las Vegas Strip properties to compete with new, high-end casinos from Wynn, Las Vegas Sands and MGM Mirage. On Oct. 2 the company said it was trading 24 acres on the Strip for Boyd Gaming Corp's Barbary Coast Hotel and Casino, giving Harrah's a stretch of six casinos along the Strip's east side and a total of 350 acres.

On Oct. 25, Loveman said an announcement was ``two to three months away.'' That project may be scaled back, said Robert LaFleur, a Stamford, Connecticut-based analyst at Susquehanna Financial Group.

Latham & Watkins LLP gave Harrah's legal advice, and Kaye Scholer LLP advised a special committee of the company's board. UBS Securities LLC gave financial advice to the committee.

Peter J. Solomon Co. gave a fairness opinion to the board. Deutsche Bank Securities is the financial adviser for Apollo and Texas Pacific. Wachtell Lipton Rosen & Katz, Cleary, Gottlieb Steen & Hamilton LLP and Schreck Brignone are giving legal advice.

To contact the reporter on this story: Oliver Staley in New York at ostaley@bloomberg.net; Brett Cole in New York at coleb@bloomberg.net

Last Updated: December 19, 2006 19:38 EST