* New entity to improve company's capital structure
* To include online business, Planet Hollywood casino
* Apollo and TPG intend to invest total of $500 mln
* Shares rise 34 percent
April 23 Casino operator Caesars Entertainment Corp said it would spin off assets, with buyout firms Apollo Global Management LLC and TPG Capital LP investing $250 million each in a new business free from the shackles of the company's debt.
The deal could raise up to $1.2 billion for Caesars, which was taken private by a consortium led by the two private equity firms in 2008 for $30.7 billion, went public last year, and is struggling to cope with a debt mountain in excess of $24.1 billion.
Caesars shares leaped 34 percent after the announcement to a one-month high of $16.76 as investors welcomed the terms of the deal.
Caesars said on Tuesday it would retain majority ownership of a newly created entity, Caesars Growth Partners LLC, that will raise cash from TPG, Apollo and existing Caesars shareholders to buy assets from Caesars.
Caesars Growth Partners will own the company's online business, Caesars Interactive Entertainment, as well as the Planet Hollywood Resort & Casino in Las Vegas, and Caesars' interests in the Horseshoe Baltimore casino under development.
"The transaction enables us to raise equity capital at attractive valuations without diluting stockholders of Caesars and provides Caesars additional cash liquidity without incurring new debt," Caesars Chief Executive Gary Loveman said in a statement.
TPG and Apollo currently own about 70 percent of Caesars. The valuations of their funds have suffered as a result of their investment in the company, which has been burning cash to service its debt load while struggling to recover from a slump in gambling revenues bought about by the 2008 financial crisis.
Caesars is now trying to position itself for a boom in gambling on the Internet. The legalization of online gambling in New Jersey this year, following similar legislation by Nevada and Delaware last year, is expected to persuade other U.S. states to change their laws.
"Maybe there's some benefit to raising additional capital to grow the online division, but have the prospects changed? No. The casino market is saturated. Caesars has terrible returns, about 3 percent return on invested capital, versus 30 percent by Asian operators," said Chad Mollman, an analyst with Morningstar.
Caesars is expected to own as little as 57 percent and as much as 77 percent of Growth Partners depending on the amount of proceeds raised through the sale of shares, and will receive a call option that allows it to repurchase all of the economic interest and control of the assets in the future.
Growth Partners will get $500 million from Apollo and TPG. If all subscription rights are exercised by Caesars shareholders, Growth Partners should receive about $1.2 billion, the company said.
Caesars will contribute to Growth Partners its ownership of Caesars Interactive Entertainment and approximately $1.1 billion face value of senior notes issued by a Caesars subsidiary.
The value of the assets to be contributed or sold was evaluated by a valuation committee of three of Caesars' independent directors, Caesars added. The valuation committee received financial advice from Evercore Partners and legal advice from Morrison & Foerster LLP.