LAS VEGAS, Nev. -- Casino giant Harrah's Entertainment will be owned by two private equity firms in an all-cash deal worth $27.8 billion, the largest-ever transaction for a gaming company and one of the largest-ever leveraged buyouts of an American corporation.

The deal, which had been brewing since Oct. 2, was announced Tuesday afternoon after the close of trading on the New York Stock Exchange and will take Las Vegas-based Harrah's, the world's largest casino operator, private and out of the traditional public markets.

Sources said financial terms of the buyout were agreed upon in principal last week. New York-based Apollo Management and Texas Pacific Group of Fort Worth, Texas, committed to pay $90 a share to buy approximately 190 million outstanding shares of Harrah's Entertainment, or $17.1 billion. In addition, the firms will assume the company's $10.7 billion debt.

The deal would be the fifth largest leveraged buyout this year and the sixth largest of all time, according to Thomson Financial.

The private equity groups will be paying a premium of approximately 36 percent over the closing price of Harrah's shares on Sept. 29, the last trading day before the private equity group's original offer of $81 a share was disclosed. Shares of Harrah's closed Tuesday at $82.32, up 14 cents or 0.17 percent.

Gaming analyst Matthew Jacob of Majestic Research in New York summed up the deal as an industry-altering event. Investors are already speculating on the next private equity funded takeover of a casino operator.

"I think gaming industry investors are viewing this deal as (historic)," Jacob said. "Investors are looking at anything that makes a company's stock more attractive to private equity."

Dennis Farrell of Wachovia High Yield Research in Charlotte, N.C., said the transaction raises the gaming industry's valuation bar in the minds of investors. Smaller casino operators wanting to stay publicly traded, however, may be taking actions to ward off suitors.

"I don't know if this is an industry changing deal, but the valuations are rising and will continue to rise," Farrell said. "Some companies are going to get defensive, maybe even acquire smaller operators. What's clear is that if a leveraged buyout can be completed for Harrah's, then any gaming company is a target."

MGM Mirage President and Chief Financial Officer Jim Murren said the deal was the most significant transaction ever for a casino operator, topping his company's $6.7 billion buyout of Mirage Resorts in 2000 and the $7.9 billion buyout of Mandalay Resort Group last year.

"The gaming industry is so small, something this large by any industry scale is historic," Murren said. "The valuations for casino companies are going through a sea change. We paid eight times cash flow for Mirage and nine times cash flow for Mandalay. Now, gaming companies are getting 13 to 14 times cash flow."

Under terms of the transaction, the private equity groups have more than a year to finalize the deal, which needs approval from Harrah's stockholders and the endorsements of regulators in the 13 states where Harrah's operates almost 40 casinos, including Nevada.

Gaming Control Board Chairman Dennis Neilander said Tuesday it was hard to predict how long the investigative process would take, since it involves two large private equity firms that are new to Nevada.

"It's unclear the makeup of their corporate structure or how many individuals will need to be licensed," Neilander said. "We'll do what we can to accommodate any deadlines they may have."

Neilander said other recent gaming industry private equity licensing transactions took more than a year to finalize. A deal for Los Angeles-based Oaktree Capital Management to purchase one-third of Cannery Casino Resorts took more than a year to complete and involved licensing eight individuals and the company, he said.

Neilander expects other casino company private equity deals to come about, but for now, regulators need to explore each transaction on a case by case basis.

In a statement, Harrah's Chairman and Chief Executive Officer Gary Loveman said Apollo and Texas Pacific support the company's growth initiatives.

"We will have owners who share our vision for Harrah's, are fully supportive of our current strategy and are committed to helping us execute on it," Loveman said. "This will be a change in ownership, not a change in direction."

Joseph Weinert, a spokesman for industry consultant Spectrum Gaming, told CBS MarketWatch the private equity firm's backing of Harrah's initiatives were important aspects to the deal making sense.

"The key statement is Gary Loveman saying that the new owners want to continue down the path previously laid out by management," Weinert said. "This indicates that Harrah's will proceed with its major expansions planned for Las Vegas and Atlantic City. I also detect a bit of relief in that Harrah's can pursue its vision without having to worry about the quarter-to-quarter mind set of Wall Street."

The transaction was the subject of multiple lengthy meetings in New York between the Harrah's board of directors and representatives of the private equity groups both last week and Sunday. The Harrah's board voted Tuesday morning to approve the final agreement.

Under the terms of the merger agreement:

Loveman and Harrah's management team will be retained by the equity groups and operate the company.

Harrah's has 25 days to try and solicit superior proposals from interested third parties. The company does not intend to disclose developments on the solicitation process, however, unless and until its board of directors has made a decision.

Harrah's will pay shareholders its regular quarterly dividend of 40 cents a share until the transaction closes.

If the deal doesn't close by March 1, 2008, Apollo and Texas Pacific have agreed to increase the purchase price by just under 2 cents per share per day.

Harrah's executives said the company will continue to operate as usual while the private equity groups seek regulatory approval. The company operates such brands as Harrah's, Caesars and Horseshoe. In addition, Harrah's owns the lucrative World Series of Poker and also operates casinos in Canada and Uruguay.

Harrah's has development deals in such countries as Spain and Slovenia and has a deal in place to buy United Kingdom casino operator London Clubs International.

In 2005, Harrah's reported earnings of $236.4 million on revenue of $7.1 billion. The company has a current market capitalization of almost $15 billion.

The purchase of Harrah's comes 18 months after the company became the gaming industry's largest casino operator after buying rival Caesars Entertainment for a then-record $9 billion.

"For the next year, while the sponsors will be getting regulatory approvals, our plan is just to put our heads down and continue to run our business," said Harrah's CFO Jonathan Halkyard. "We have several growth initiatives in the works, and our plans are to continue those efforts."

By selling to private-equity firms, gaming analysts believe Harrah's will have more freedom to continue its expansion initiatives without the scrutiny of shareholders seeking a quick return on investments.

In Las Vegas, Harrah's operates seven casinos -- Harrah's Las Vegas, Flamingo, Caesars Palace, Bally's, Paris Las Vegas, Rio and Imperial Palace -- and is in the process of purchasing the Barbary Coast. That deal is the result of a land swap with Boyd Gaming Corp.

The Barbary Coast and its 4.4 acres would give Harrah's some 350 acres contiguous with the Strip for development purposes. Harrah's said the land, in total, cost approximately $13 million an acre. The company is exploring options for the 350 acres, including redeveloping some casino properties.

Bear Stearns gaming analyst Joe Greff said how Harrah's operates its business while the deal moves through the approval process could have implications for other casino companies.

"If Harrah's were to pursue an aggressive (capital expenditure) program in Las Vegas, with meaningful displacement and disruption, this would likely benefit existing Strip operators, namely MGM Mirage and Wynn Resorts," Greff said.

MGM Mirage's Murren said he was glad Loveman and his team were remaining on board. He expects the company to continue its plans, especially with the land it controls on the Strip.

"Harrah's, I believe, is not doing this deal to slow down growth," Murren said. "I think the new owners clearly believe in Harrah's management. The public markets aren't rewarding to a company during the development cycle, and I think it will be easier for Harrah's to move forward with its initiatives."

The potential new owners of Harrah's include Apollo Management founding partner Leon Black, who was the former co-head of corporate finance at now-defunct Drexel Lambert Inc., the top underwriter of high-yield corporate debt before collapsing in 1990. Black, 55, founded Apollo Management that year and has made equity investments of more than $16 billion.

The agreement eliminated Penn National Gaming Inc., a Wyomissing, Pa.-based race track and casino operator, which reportedly offered $88.50 per share.

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