Harrah's Entertainment Inc. , the world's biggest casino operator, on Monday said it had received a $15 billion buyout offer from private equity firms Apollo Management and Texas Pacific Group. (TPG.UL), sending shares of the whole gaming sector up.

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The proposed deal, which would rank as the fifth-largest leveraged buyout on record, signals new interest in the gambling sector for heavily funded private equity groups, which have struck big deals this year in health care, media and technology.

Las Vegas-based Harrah's - which owns or manages more than 40 casinos, mainly under the Harrah's, Caesars and Horseshoe brands - gave no indication that it would accept the deal. It said it had formed a special committee of its non-management directors to review the proposal.

The offer comes amid soaring U.S. interest in all forms of gambling, which has helped Las Vegas become one of the country's top tourist destinations.

Despite that, Harrah's shares have sagged since May, as the economy has shown signs of a downturn and investors have recoiled from the company's rising development costs and big spending plans for Las Vegas, Atlantic City in New Jersey, and the Mississippi Gulf Coast. It has also struggled to make headway in the fast-growing Asia market.

Prices have come down to the point where it makes sense ... to put money in these things, said Mal Polley, chief investment officer at S&T Wealth Management, which manages $1.3 billion in assets including shares in Harrah's rivals Boyd Gaming Corp. (NYSE:BYD - news) and Station Casinos Inc. (NYSE:STN - news)

Long term, these companies are going to be fine, he said. People live for the possibility of that one big score.

Harrah's shares closed up $9.25, or 13.9 percent, at $75.68 on the

New York Stock Exchange, posting their largest one-day gain since 1998 and leading gains across the gaming sector.

Harrah's corporate bonds fell on worries that a leveraged buyout would pile more debt on the company. Standard & Poor's downgraded its debt rating on Harrah's to below investment grade, or junk.

BIG PREMIUM

The buyout offer from Apollo Management and Texas Pacific is for $81 cash per share, valuing Harrah's at about $15 billion overall. The company also has about $10.6 billion of long-term debt on its books.

The offer puts a 22 percent premium on Harrah's Friday closing price, and values the company at about 9.7 times forecast earnings before interest, tax, depreciation and amortization for next year, according to analysts.

If this deal gets done, clearly it opens the way for (casinos) as a new home for private equity, said Smedes Rose, an analyst with Calyon Securities.

Shares of Harrah's rivals MGM Mirage (NYSE:MGM - news), Pinnacle Entertainment Inc. (NYSE:PNK - news) and Boyd Gaming Corp. (BYD.N) rose sharply. The Dow Jones U.S. Gambling index (^DJUSCA - news) rose 3.6 percent.

The offer for Harrah's comes just as the company puts the finishing touches on its plans to beef up its presence on the Las Vegas Strip by acquiring Boyd's Barbary Coast Hotel and Casino. After buying Caesars Entertainment last year, Harrah's now controls some 350 acres of prime strip property.

Las Vegas is the epicenter of U.S. gambling, attracting more than 38 million visitors last year. Overall, U.S. spending on gambling rose 5 percent in 2005 to a record $30.3 billion.

NO DECISION YET

Harrah's, which was listed in 1973, gave no indication it would agree to a buyout deal. The Special Committee has not determined that a transaction is in the best interests of Harrah's and its stockholders, it said in a statement.

The proposed deal is the latest move in the rapidly consolidating casino market. Last year Harrah's bought rival Caesars Entertainment for about $6.8 billion, while No. 2 casino firm MGM Mirage bought Mandalay Resort Group for about $5 billion.

On a smaller scale, Penn National Gaming Inc. (Nasdaq:PENN - news) last year bought riverboat casino company Argosy Gaming Co. for about $1.4 billion. Earlier this year, hotel and casino owner Columbia Sussex won a bidding battle to buy casino operator Aztar Corp. (NYSE:AZR - news) for about $1.9 billion.

In May, resort and casino operator Kerzner International Ltd. struck a $3.2 billion deal to go private, bought by an investor group led by its chairman and chief executive.

The offer for Harrah's is the latest sign of aggressive private equity investors, fueled by record-sized funds, banding together to make big-ticket offers.

In July, an investor group including Bain Capital, Kohlberg, Kravis Roberts and Merrill Lynch (NYSE:MER - news) struck a deal to buy hospital operator HCA Inc. (NYSE:HCA - news) for $21 billion in the second-largest leveraged buyout on record, excluding debt.

KKR's 1988 deal to buy out food and tobacco group RJR Nabisco, worth about $25.1 billion excluding debt, is the largest buyout deal on record. The terms of Monday's offer for Harrah's would likely make it the fifth-largest on record, excluding debt, according to research firm Dealogic.

Other companies that agreed to large buyouts this year include Freescale Semiconductor Inc. (NYSE:FSL - news), oil and gas pipeline operator Kinder Morgan (NYSE:KMI - news) and broadcaster Univision Communications Inc. (NYSE:UVN - news).

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