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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
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[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S)
240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
Harrah's Entertainment, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant): Hotel Employees & Restaurant Employees
International Union
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Material submitted by:
Hotel Employees and Restaurant
Employees International Union ("HERE")
Research Department
1219 28th Street, N.W.
Washington, D.C. 20007
tel. (202) 393-4373
fax (202) 333-6049
Contact: Matthew Walker 202-393-4373
_________________________________________________________
Harrah's Entertainment
ANNUAL MEETING
Record date: 03/04/97 Meeting date: 04/25/97
Exchange: NYSE Ticker: HET
Cusip: 413619107 Telephone: 901-762-8600
The agenda for this meeting is:
Number Proposal (SP-- indicates shareholder proposal)
1. Elect directors
2. Ratify selection of auditors
3. SP--Amend bylaws to redeem poison pill
EXECUTIVE SUMMARY
Proxy fight! Shareholders face an independent solicitation for a
binding bylaw amendment that would require the company to redeem
its poison pill. The amendment would also require shareholder
approval for future pills adopted by the company. The Hotel
Employees and Restaurant Employees International Union crafted
the bylaw proposal in the wake of a January federal court
decision ordering Fleming to allow a shareholder vote on a
binding bylaw amendment to redeem its pill. Previously,
shareholder resolutions to redeem poison pills were nonbinding.
It is not clear whether Delaware courts will consider the bylaw
valid if it is adopted. The union says it will conduct a
"full-bore" independent solicitation for the resolution. Harrah's
initially chose not to put the resolution on its proxy card, but
it resolicited shareholders on March 25 with a second red-striped
proxy card that includes the proposal. HERE is circulating a
dissident blue proxy card that lists the poison pill proposal
first.The company suggests that HERE is attempting to influence
labor issues, including soon-to-commence negotiations on renewal
of a collective bargaining agreement in Las Vegas. The company
adopted a new pill in 1996, upon expiration of an old one. The
new pill has a lower trigger, at 15 percent. The company has
underperformed the S&P 500 and an industry peer group of
companies over the last three years.
COMPANY PROFILE
Harrah's Entertainment, a leading casino company, has seen its
stock perform poorly recently. The company instituted a share
buyback in October 1996, but its share price remains low. Sky
Games International said in February that Harrah's was making an
investment in the company, and would become Sky Games' largest
shareholder, with about 31 percent ownership. Harrah's already
had a 20 percent interest in a Sky Games subsidiary. Harrah's
Jazz--a 47 percent-owned affiliate that filed for bankruptcy in
November 1995--is nearing its confirmation hearing--scheduled for
April 1997--in bankruptcy court on a reorganization plan. Under
the plan, Harrah's will have 48 percent ownership interest in a
new entity that will complete construction of the Rivergate
Casino in New Orleans. Chairman Michael D. Rose retired from
Harrah's Entertainment on Jan. 1, 1997. He was succeeded as
chairman by CEO Philip G. Satre.
Equity: Common stock: 102,756,865 shares.
Ownership: Directors and officers: 3.0 percent.
Employee savings and retirement plan: 6.6 percent.
Significant shareholders: Capital Group, 8.0 percent;
Massachusetts Financial, 9.8 percent; Oppenheimer Group, 8.5
percent.
Institutions: 66.4 percent.
Performance: Stock price data as of Dec. 31, 1996 (percent)
Price appreciation Total returns
1 yr 3 yr 5 yr 1 yr 3 yr 5 yr
Harrah's Entertainment -18.0 -56.6 171.0
- -18.0 -38.8 282.0
S&P 500 index 20.3 58.8 77.6 22.9 71.2 102.7
Industry group 10.5 -15.1 125.7 11.9 -10.8
143.3
Financial data: Financial data as reported by CompuStat
(March 13, 1997)
Sales ($ millions) Net income ($ millions) Return on
equity
1 yr 3 yr 1 yr 3 yr 1 yr 3 yr
Harrah's Entertainment 1,550.1 1,380.4 78.8 81.2 13.5
12.9
S&P 500 average 8,535.2 7,866.1 506.0 433.0
14.2 14.2
Industry group 628.8 559.4 48.5 46.6 -2.2 7.6
Industry description: Gaming, lottery and pari-mutuel
Number of companies in industry group: 11
Last stock split: November 1993
VOTING ITEMS
Proposal No. 1 (management card): Elect directors
Proxy statement page: 2
Background: See 1997 IRRC Background Report L: Boards of
Directors
This election Board profile
Number of directors to be elected 3 Percentage of independent
directors:
Total number of board seats 10 on the board 70.0
on the nominating committee 100.0
Classified board yes on the compensation committee 100.0
Cumulative voting no Non-employee chairman no
Committee assignments
Directors (asterisk indicates nominee) No. Comp. Nom.
Employees 1 0 0
Philip G. Satre; chairman, CEO, president no no
Non-employee directors with links 2 0 0
Ralph Horn; financial services no no
Susan Clark-Johnson; business transaction no no
Non-employee directors without reported links 7 5 5
Totals 10 5 5
Attendance
Directors who attended fewer than 75 percent of meetings last
fiscal year: James L. Barksdale.
Comment
Director Shirley Young will retire from the board as of the
annual meeting.
Proposal No. 2 (management card): Ratify selection of auditors
Proxy statement page: 26
Proposed auditors: Arthur Andersen
Same auditors as last year: Yes
Proposal No. 3 (management card): Shareholder proposal--Bylaw
amendment to redeem or vote on poison pill
Vote required: 75 percent of outstanding shares
Proponent: Hotel Employees and Restaurant Employees International
Union
Background: See 1997 IRRC Background Report F: Poison Pills
Proposal To amend the bylaws to require the company to redeem its
poison pill shareholder rights plan, and to require a majority
vote of shareholders for any future plan.
The poison pill contains the following provisions:
Stock ownership triggering event is 15 percent; tender offer
trigger is 15 percent
Flip-in provision that allows rights holders to buy company stock
at a discount
Flip-over provision that allows rights holders to buy stock in
the acquiring company at a discount
Plan will expire Oct. 5, 2006
Exchange option that allows the board to issue one share of
common stock for each right after the trigger point has been
passed
Continuing director clause, which allows only continuing or
independent directors to redeem the pill under certain
circumstances
Arguments
For The proponent says Harrah's shareholder rights plan "is
a powerful antitakeover device which effectively prevents a
change in control" without approval of the board, and "forces
potential investors to negotiate acquisitions with management,
instead of making their offer directly to shareholders." Poison
pill critics say the plans harm shareholder value and entrench
management by deterring stock acquisition offers that are not
favored by the board of directors.
Pill plans may also depress stock price and promote poor
corporate performance. Several studies point to a drop in share
value at the time of the adoption of a rights plan.
Shareholders, says the proponents, "should be able to decide
for themselves whether to accept an offer for their stock without
interference in the form of a poison pill." This view was backed
by a federal judge in the January Fleming decision, who said that
pills affect the marketability of shares, and should not be
"beyond the cognizance of the shareholders, who are the people
who really care about the marketability of shares."
Against In an October letter to shareholders, Harrah's
said that the new rights plan adopted in 1996 "is similar in
purpose and effect to the plan that it replaced and is intended
to protect your interests in the event you and Harrah's are
confronted with coercive takeover tactics." Harrah's said it was
distributing the rights "to assure that all Harrah's stockholders
receive fair and equal treatment in the event of an unsolicited
attempt to acquire the company, including through an accumulation
of stock in the open market, and to guard against partial,
two-tier or inadequate tender offers and other abusive takeover
tactics which the board of directors believes are not in the best
interests of stockholders."
In its March 25 solicitation of shareholders,
Harrah's notes academic studies indicating that acquisition
premiums for companies with shareholder rights plans are
significantly higher when a poison pill is in place. Harrah's
says the board is in "the best position to negotiate on behalf of
all stockholders, evaluate the adequacy of any potential offer,
and protect stockholders against potential abuses during the
takeover process." Poison pill proponents say a shareholder
rights plans enables the board to respond in an orderly and
considered manner to unsolicited bids, providing sufficient time
to carefully evaluate the fairness of an unsolicited offer and
the credibility of the bidder, and gives the board the
flexibility to explore alternative strategies for maximizing
stockholder value. They also say that a rights plan provides
incentives for a potential acquirer to negotiate in good faith
with the board, which is best qualified to negotiate for all
shareholders. Such negotiations are likely to maximize value for
shareholders by soliciting the highest possible price from the
bidder.
The company notes that its board is
majority-independent, and says "this provides further assurance
that the rights plan will not be used for entrenchment purposes."
Legal questions on bylaw amendment
It is not clear that the bylaw amendment, if
approved but contested by the company, will be upheld as valid by
Delaware courts. HERE argues in its proxy solicitation materials
that the proposal is valid, though the union recognizes that
Delaware courts "have not considered the validity of it or any
similar bylaw and, therefore, have not resolved the extent to
which stockholder-adopted bylaws may limit the authority of a
board of directors to oppose, or to adopt or employ defensive
measures against, takeover bids." The company has not addressed
legal issues in shareholder materials, and would not comment on
whether it contemplated any legal action.
HERE says the recent federal court decision
involving Fleming suggests that the bylaw amendment is valid. In
January, a federal judge ruled that Fleming, which is
incorporated in Oklahoma, must allow a shareholder vote on a
bylaw amendment like the one HERE is proposing for Harrah's. The
judge ruled that under Oklahoma law, shareholders have a right to
enact a bylaw giving shareholders the right to review shareholder
rights plans. Oklahoma law in this regard is patterned after
Delaware law. The Fleming decision has received some criticism
from legal experts, and the company is appealing it.
The company says its Delaware legal counsel
believes the proposal is invalid under Delaware corporate law.
First, says the company, as a matter of Delaware law, "except as
provided in a company's certificate of incorporation, a company's
business and affairs must be managed by or under direction of the
board of directors." The company says its board has an
affirmative legal duty to respond to and resist takeover
attempts, and that the shareholder bylaw amendment interferes
with that right and duty. Second, says the company, the bylaw
amendment is invalid "because it is inconsistent with the
company's charter," since it would prevent the board from further
amending its bylaws on this matter once shareholders approve the
bylaw amendment. (The charter gives both the board and the
shareholders the right to amend the bylaws.) Finally, says
Harrah's, the bylaw amendment would require the company to expend
money on redeeming existing rights, which "limits the exclusive
authority of the board of directors to determine whether to use
corporate funds to redeem outstanding rights."
Other current Harrah's takeover defenses
Charter provisions, bylaws provisions and policies
Fair price Yes Limited action by special meeting Yes
Supermajority vote to approve merger No Limited shareholder
ability to amend charter No
Antigreenmail No Limited shareholder ability to amend bylaws
Yes
Consider nonfinancial effects of merger No Cumulative voting
No
Limited action by written consent Yes Confidential voting No
Advance notice for shareholder action Yes Classified board
Yes
Capital structure
Blank check preferred stock Yes Unequal voting rights No
Poison pill (shareholder rights plan) Yes Esop ownership 6.6
percent
Dual class common stock No Other known to IRRC none
State antitakeover law
Jurisdiction: Delaware
Antitakeover provisions:
three-year freeze out
Analysis The HERE proposal is a binding bylaw amendment.
(Shareholder proposals generally are worded as nonbinding
requests.) The Harrah's resolution is particularly significant,
coming on the heels of the court decision in the Fleming case
suggesting that shareholder bylaw amendments related to poison
pills are permissible, at least under Oklahoma law, which is
patterned after Delaware law. The Fleming and Harrah's proposals
are the only two bylaw amendment proposals to redeem poison pills
of which IRRC is aware. While the company is not commenting, it
is at least plausible that passage of the bylaw amendment--which
only would occur should the resolution receive support from at
least 75 percent of outstanding shares entitled to vote--would
trigger a legal fight from the company to prevent imposition of
the bylaw amendment.
Some shareholders may be more inclined to support the
resolution in part because Harrah's new poison pill, adopted in
1996, has a relatively low trigger level of 15 percent. (The old
pill triggered when a person or group acquired a 20 percent
interest, or when an acquirer made a tender offer for 30 percent
of common stock.) The company's poor share price performance in
recent months also may be a factor in considering this proposal.
Shares currently trade at just under $18, down from $24.25 at the
end of 1995.
Poison pills continue to receive high levels of opposition
from institutional investors; 60 percent of respondents to IRRC's
1996 voting survey said they routinely vote for shareholder
proposals asking for redemption or shareholder votes on poison
pills.
- --Krista J. Berk and Ken Bertsch
Proxy solicitor for management: D.F. King; 212-269-5550
HERE, the dissident, is acting as its own solicitor;
202-393-4373