By Adam Goldman
The Associated Press

LAS VEGAS - Harrah's Entertainment Inc.'s $5.2 billion deal to buy Caesars Entertainment Inc. would rearrange the industry's hierarchy, creating the world's largest gambling company and leaving two casino giants controlling most of the Las Vegas Strip's most-prized mega-resorts.

The blockbuster deal announced Thursday eclipses last month's $4.8 billion MGM Mirage merger with Mandalay Resort Group.

Harrah's not only leapfrogs MGM Mirage on the world stage, it gains the high-profile place it has long sought in Las Vegas - if regulators approve the deals, possibly by next year.

The transactions would leave 15 major hotel-casinos in the gambling capital in the hands of the two combined companies, and both competing for a broad spectrum of tourists. Of the 32 hotel properties on the Strip, about 25 are considered major.

"These are the right assets for the development of our strategy," Gary Loveman, Harrah's president and chief executive, said in a conference call Thursday to announce the agreement. "We believe that these assets are worth more in our hands than in the incumbent's hands. We believe we have acquired them at a reasonable price."

Under terms of the deal, Harrah's will pay $1.8 billion in cash and exchange about $3.4 billion in Harrah's stock for all shares of its Las Vegas-based rival.

Harrah's also will assume about $4.2 billion in Caesars Entertainment debt.

Harrah's owns casino boats in East Chicago and Hammond, Ind. The merger would give Harrah's a third boat - Caesars Indiana along the Ohio River near Louisville, meaning one of the three casinos would have to be sold. Under Indiana law, an operator can own only two casinos in the state.

Harrah's also is part owner of the thoroughbred racing facility Turfway Park in Florence.

The offer to buy Caesars caught some gambling analysts off guard because Loveman had said he wasn't interested in the company when MGM Mirage was negotiating to buy Mandalay. Loveman changed his mind after that agreement was signed and opened talks with Caesars last month, a source familiar with the negotiations said.

With the marriage, Harrah's would immediately be able to cater to a wealthier clientele with the addition of the newly revamped Caesars Palace. Harrah's has traditionally attracted more casual yet loyal gamblers.

Attains one of company's goal

The buyout gives Harrah's a major presence on the Strip, one of the company's strategic goals. Before it only had Harrah's on the famous stretch and the off-Strip Rio.

"Caesars provides us access to new markets and new customers," Loveman said.

Harrah's also would be able to use its technology and extensive customer database to help improve the bottom line at the underperforming Caesars properties.

Now Caesars and Harrah's both operate 28 casinos each, doing business in Mississippi, Indiana, New Jersey, Louisiana, Illinois and North Carolina. Caesars also runs casinos on four continents. Together, Harrah's would have more than 95,000 employees.

Standard & Poor's said Thursday it "expects that Harrah's will divest assets in some jurisdictions as a result of the combination. Harrah's will own three gaming licenses in Indiana but regulations permit ownership of only two plus 10 percent of a third."

Also on Thursday, Standard & Poor's revised its rating outlook on Harrah's Entertainment Inc. to negative from stable.

Shares of Caesars dropped 95 cents, or 5.9 percent, to close at $15.05 Thursday on the New York Stock Exchange. Harrah's shares fell $3.07, or 6 percent, to close at $47.91.