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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ ]
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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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[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
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the offsetting fee was paid previously. Identify the previous
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Matthew Walker
Director of Research and Education
Hotel Employees and Restaurant Employees International Union
1219 28th St. NW
Washington, DC 20007
Telephone: (202) 393-4373
Voice Mail: (202) 333-0674
FAX: (202) 333-6049
April 7, 1997
Dear Harrah's Shareholder:
For your information, we are enclosing a copy of a Proxy
Alert recently issued by Institutional Shareholder Services. The
Alert concerns the April 25, 1997 annual meeting for Harrah's
Entertainment, Inc.
HERE is soliciting support for a shareholder proposal to amend
the by-laws to redeem the company's "Poison Pill" and require
prior approval by a majority stockholder vote for adoption of any
such "Poison Pill" in the future. The HERE proposal is discussed
in detail in the enclosed Alert. ISS is not a participant in this
solicitation and has not expressly disapproved of or consented to
distribution of the Alert
Sincerely,
Matthew Walker
Director of Research and Education
enclosure
Institutional Shareholder Services (SM)
Proxy Alert: Harrah's Entertainment, Inc.
HET (NYSE)
Annual Meeting: April 25, 1997
Record Date: March 4, 1997
Security ID: 413619100 (CUSIP)
by Mark Brockway, Senior Analyst
April 4, 1997
MEETING AGENDA
Item Code Mgt Agenda (RED-STRIPED Card) Mgt Rec. ISS Rec.
1. M0201 Elect Directors For
FOR
2. M0101 Ratify Auditors For
FOR
Shareholder Proposal
3. S0302 Submit Shareholder Rights Plan
(Poison Pill) to Shareholder Vote Against
FOR
MEETING AGENDA
Item Code HERE Agenda (BLUE Card) HERE Rec. ISS Rec.
Shareholder Proposal
1. S0302 Submit Shareholder Rights Plan
(Poison Pill) to Shareholder Vote For
FOR
Management Proposals
2. M0201 Elect Directors For
FOR
3. M0101 Ratify Auditors For
FOR
*Shareholders may return either management's new RED-STRIPED
proxy card or HERE's BLUE proxy card, regardless of how they wish
to vote. If shareholders do not properly execute one of the
proxy cards containing the shareholder proposal and have only
returned management's original proxy card, which excluded the
shareholder proposal, the company may have discretionary
authority to vote against the proposal without consulting
shareholders.
ALERT: Subsequent to our original analysis for Harrah's
Entertainment, Inc., dated March 25, 1997, ISS has learned that
the Hotel Employees and Restaurant Employees International Union
(HERE) is soliciting support for a shareholder proposal to amend
the company's bylaws to redeem the company's shareholder rights
plan and to provide that no rights plan may be enacted in the
future unless such plan is approved by a majority shareholder
vote. HERE's solicitation is accompanied by a BLUE proxy card.
This proposal did not appear in management's original proxy
statement. The company has sent out a supplement to its original
proxy statement which details management's opposition to the
shareholder proposal. In addition, the company is soliciting new
RED-STRIPED proxy cards, which will allow shareholders to vote on
the shareholder proposal.
Item 3: Submit Shareholder Rights Plan (Poison Pill) to a
Shareholder Vote
NOTE: This proposal appears as Item 1 on HERE's BLUE proxy card
and Item 3 on management's RED-STRIPED proxy card.
HERE seeks approval of a proposal to amend the company's bylaws
to redeem the company's shareholder rights plan and to provide
that any new rights plan must be approved by a majority of the
shareholder vote. Furthermore, this bylaw amendment, if
approved, may not be amended or deleted by the board without
prior shareholder approval. Note that the approval of 75 percent
of the voting shares is required to adopt this bylaw amendment.
The company's current shareholder rights plan was adopted in July
1996 and replaced a plan which was scheduled to expire Oct. 5,
1996.
Shareholder rights plans, or poison pills, typically take the
form of rights or warrants issued to shareholders and are
triggered only by a hostile acquisition attempt. When triggered,
poison pills generally allow shareholders to purchase shares
from, or sell shares back to, the target company ("flip-in" pill)
and/or the potential acquirer ("flip-over" pill) at a price far
out of line with fair market value. Depending on the type of
plan, the triggering event can either transfer wealth from the
target company or dilute the equity holdings of current
shareholders.
Harrah's plan provides for one right to be attached to each
common share outstanding. If a person or group acquires 15
percent or more of the company's common stock or commences a
tender offer to acquire 15 percent or more of the common stock,
all rights except those held by the acquiring party become
exercisable. Each right entitles shareholders to purchase 1/200
of a share of Harrah's Series A Special Stock for $130. The
board may elect to redeem the rights if an attractive acquisition
offer is received and approved by the board.
Management's Position
Management argues that the rights plan merely guards against
two-tiered offers and other back-end-coercive treatment, ensuring
that shareholders are treated equitably in the event of a
takeover bid. According to management, the rights plan forces a
potential acquirer to negotiate directly with the board, which is
in the best position to evaluate any takeover offers. Management
believes that the rights plan gives the board leverage to
negotiate to get the best possible deal for shareholders.
Management notes that more than 90 percent of the directors
serving on the company's board are independent directors and that
the rights plan is not an entrenchment device.
Management also questions HERE's motives in submitting this
proposal, noting that HERE became a shareholder of the company in
December 1996, purchasing 110 shares, and shortly thereafter
notified the board of its intent to submit this shareholder
proposal. Management states that the company will begin
negotiations shortly with HERE for the renewal of a collective
bargaining agreement for union employees of Harrah's Las Vegas
Casino and Hotel. Additionally, management contends that HERE
has been attempting unsuccessfully to attract Harrah's employees
at other properties to join the union. Management alleges that
HERE is attempting to use the shareholder proposal process to
influence the company with respect to these labor matters.
Management further believes, after consulting with its Delaware
legal counsel, that the bylaw amendment is not legally valid (see
legal discussion below).
HERE's Position
HERE argues that poison pills are powerful anti-takeover devices
which effectively prevent companies from being acquired without
the consent of the board. HERE asserts that pills force
potential acquirers to negotiate acquisitions with the board
instead of bringing offers to shareholders directly. ISS spoke
with Matthew Walker, director of research and education of HERE,
about HERE's reasons for submitting the proposal. Mr. Walker
states that HERE has no labor dispute with Harrah's and that the
Las Vegas contract negotiations are expected to go smoothly. In
addition, he denies that HERE has ever made any unsuccessful
attempts to solicit nonunion Harrah's employees to join the
union, as management claims. Mr. Walker stated that HERE
submitted this proposal because it would benefit both
shareholders and employees of the company. He believes that in
the competitive environment in which the company operates,
"employees will bear the brunt of economic pressure" facing the
company, not management. Mr. Walker is not making any assertions
about the effectiveness of management, but instead believes that
the poison pill, along with several other devices, serve to
entrench it. HERE submitted a binding bylaw amendment instead of
a precatory proposal because "precatory proposals have not
received due respect from management" at companies at which they
have been submitted.
Legal Issues
The issue of whether shareholders have the right to approve bylaw
amendments redeeming shareholder rights plans is unclear under
Delaware law and has been the subject of recent debate. On one
hand, Section 141(a) of Delaware General Corporation Law (DGCL)
gives boards the authority to manage the business and affairs of
a corporation, except as otherwise provided for in the DGCL or
the company's certificate of incorporation. However, Section 109
of the DGCL provides that the shareholders of a company may
adopt, amend, or repeal the bylaws of a company, which may
contain provisions relating to the business of the corporation,
its affairs, and the rights and powers of its shareholders,
directors, officers, or employees. These two provisions of the
DGCL have not been reconciled in Delaware court as they relate to
a shareholder proposal to amend the bylaws to redeem a poison
pill. Moreover, a number of Delaware Chancery Court decisions
have upheld shareholder rights plans installed by boards.
Shareholder proposals to amend companies' bylaws to redeem poison
pills have been submitted at Wallace Computer Services, Inc., and
Rexene Corp., both Delaware corporations. However, management of
both companies assert that even if approved, the bylaw amendments
are not valid under Delaware law. The bylaw amendment proposal
was voted down by shareholders at Wallace, while the proposal has
not yet been voted on at Rexene. As a result, the Delaware
courts have not made a decisive ruling on the subject. Many
shareholder activists believe that if tested, the bylaw amendment
proposal may be found to be valid under Delaware law due to a
recent Oklahoma court decision involving Fleming Cos., Inc.
Fleming was required by an Oklahoma court to include on its proxy
a proposal submitted by the International Brotherhood of
Teamsters to amend the bylaws to redeem a shareholder rights
plan. Many believe that this could be successfully used as a
precedent in a Delaware court of law, since Delaware and Oklahoma
law are very similar with respect to these matters.
Harrah's management has taken the position that the bylaw
proposal is not valid under Delaware law, primarily because the
company believes that Section 141(a) of the DGCL and the board's
fiduciary duty to shareholders supersede shareholders' right to
amend the company's bylaws. In addition, management argues that
the bylaw amendment conflicts with Harrah's certificate of
incorporation, which would make the bylaw amendment invalid under
Section 109 of the DGCL. Harrah's certificate provides that both
the board and the shareholders may amend the company's bylaws.
If adopted, this proposal would provide that only the
shareholders would be permitted to amend the bylaw amendment.
Furthermore, management contends that the amendment is legally
invalid because it would require the company to spend more than
$1 million to redeem the rights (at $0.01 per share), plus
administrative and other costs, which would be in opposition to
the board's direct authority to decide whether to use company
funds to redeem the rights. Management states that unless the
bylaw amendment is declared lawful by a court of competent
jurisdiction, the company will not adopt the bylaw amendment.
Conclusion
Poison pills insulate management from the threat of a change in
control. They provide a target's board with veto power over
takeover bids, even those that are in shareholders' best
interests. Furthermore, poison pills amount to major de facto
shifts of voting rights away from shareholders on matters
pertaining to a sale of the company. Accordingly, shareholders
should be asked whether they want to relinquish such power before
poison pills are implemented.
It can be argued that if the company's rights plan is redeemed,
the company could be subject to a coercive takeover attempt which
could be contrary to shareholders' best interests. However, we
note that the company has other anti-takeover provisions in place
which should be sufficient to protect the company from such
attempts. For instance, Harrah's has authorized blank check
preferred stock, a classified board, no right for shareholders to
act by written consent or call special shareholders' meetings, a
company certificate containing a fair price provision, a
75-percent requirement to amend the company's bylaws, and golden
parachute agreements with certain of its executives. In
addition, the company is subject to Delaware Section 203, which
is a three-year freezeout provision restricting certain business
combinations between a company and an "interested shareholder."
Although it is not certain that this bylaw amendment will be
adopted if it is approved by shareholders, its approval would
send a message to management that shareholders do not support the
company's existing rights plan. On the other hand, if the bylaw
is given effect by the board or by the courts, shareholders'
right to consider a fully financed tender offer for the company's
shares would be restored.
We recommend a vote FOR the proposal.