NEW YORK? A year ago, lodging analysts were advising Starwood CEO Barry Sternlicht to sell Caesars World, the proceeds of which could pay down the company?s debt and improve its investment grade. But he waited, and then waited some more. Until late April. With the confidence and guile of a Vegas high-roller, Sternlicht waited it out until the ante reached $3 billion in cash, before selling Caesars to Park Place Entertainment. Analysts said the cash payment will enable Starwood to reduce its $8 billion of debt by more than one-third, lowering interest charges enough to increase earnings by about 7 cents a share. A company spokesman said, ?This will bring us much closer to our goal of issuing investment-grade debt.? Mark Mutkoski, managing director at BT Alex. Brown, said the price Starwood fetched ?was probably half a billion more than people thought they would get a few months ago. You have to give him kudos for holding on and getting a great price. Their balance sheet is in much better shape as a result of this. They are hellbent on achieving an investment grade credit rating and this is a great step in that direction. After that is achieved, the complexion of the company will change in a positive way.? Starwood, which took control of Caesars and other casinos when it bought ITT Corp. in February 1998 for $14.6 billion, acknowledged last month that it was in talks to sell the casinos. Starwood wanted to focus on its hotel business, which includes the Westin and Sheraton brands. ?Now they?re not going to have the distraction of having to be in two different businesss,? Mutkoski said. ?It gives them a lot more flexibility. The focus is back on the hotel business.? For Park Place, the focus will be on expanding their presence in gaming. ?There is not a better brand name in gaming than Caesars,? said Bjorn Hanson, global industry chairman for hospitality and leisure at PricewaterhouseCoopers. Arthur Goldberg, CEO of Park Place, said the acquisition of the Caesar?s brand name and related customer database will enable it to ?heavily cross market between our destination resorts.? In Las Vegas, Park Place already owns the Flamingo and Las Vegas Hiltons, Bally?s and the soon-to-open Paris. The addition of Caesars Palace Las Vegas, among the most profitable casinos on the Las Vegas Strip, and Caesars Atlantic City will also help boost earnings as fewer new markets allow gambling. Caesars World, which had sales of $1.3 billion last year, also manages gambling operations in Delaware, Canada, Philippines and South Africa. The sale also includes casinos in Mississippi and Indiana. ?It meets all the conditions we established for making an acquisition ? it provides strategic assets; it should be accretive to earnings in the first year and it has the potential for future growth opportunities,? Goldberg said. Park Place?s cash flow would be about $1.3 billion, almost twice that of Harrah?s Entertainment, the next largest gambling company. Separately, Starwood is in talks to purchase several chains in Europe, Sternlicht revealed. Starwood, which plans to open 50 hotels in Europe during the next three years through joint ventures, franchise agreements or management contracts, is trying to expand the Sheraton and Westin chains worldwide, Sternlicht said. ?It is such a logical business goal for the brands (Sternlicht) has,? Hanson said. ?The brand names Sheraton and Westin have international value. Now is the opportunity to expand globally.?
