Buyout funds managed by private equity giants Apollo Management LP and Blackstone Group LP (NYSE: BX) are among a growing number of limited partnerships that have experienced sharp declines in value, reports the Wall Street Journal, which highlights the economy's impact on such funds, as well as the influence of mark-to-market accounting.

Apollo and Blackstone recently disclosed to investors the values of their last buyout funds at year-end. Apollo Investment Fund VI LP, a $10.1 billion investment vehicle that closed in 2005, was held at 34% below cost. Perhaps the most notable Fund VI deal is Harrah's Entertainment Inc., which has struggled with its debt covenants. Apollo and TPG Capital LP acquired Harrah's in January 2008 for $27.8 billion.

Back in April 2007, Harrah's Entertainment Inc. became a private company through a $17.1 billion buyout. To get the deal done, the private equity sponsors -- TPG and Apollo – piled on huge amounts of debt.

At the time, the deal looked smart. After all, the gambling industry was thriving. Moreover, debt markets were highly liquid.

Of course, within a few months, the U.S. economy would sink into a credit crunch. The upshot: the Harrah's deal has turned into mess.

Las Vegas Sands (NYSE: LVS) volatility Elevated into Macao Resort Hotel opening. LVS opened the Venetian Macao Resort Hotel today. Sheldon Adelson, chairman & chief executive officer, said "it is no overstatement to say that the opening of Venetian Macao represents a massive paradigm shift for Macao and the future of tourism development in Asia." Goldman Sachs (NYSE: GS) says "the scale is enormous and the detail impressive." LVS over all option implied volatility of 44 is above its 26-week average of 39 according to Track Data, suggesting larger price fluctuations.

Ameristar Casinos (NASDAQ: ASCA) implied volatility Elevated at 43. ASCA, a Las Vegas based gaming and Entertainment Company, is recently down $0.55 to $28.39. ASCA has a market cap of $1.6 billion with long term debt of $878 million. ACSA over all option implied volatility of 43 is above its 26-week average of 37 according to Track Data, suggesting larger price risks.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Note: The Daily Option Update is provided by Options Specialist Paul Foster of theflyonthewall.com.

U.S. stocks closed mixed Monday, as General Electric Company (NYSE:GE) and Citigroup Inc. (NYSE:C) rallied to new multi-year highs. The Dow closed down -0.10%, NASDAQ 100 closed down -0.90%, and S&P 500 closed down -0.35%. The 10-year bond rate stood at 4.5870%. The CBOE VIX closed up 0.68 to 10.73.


Research in Motion Option Implied Volatility Increased To 59 Into Dec. 21 Earnings

Research In Motion (NYSE:RIMM) is expected to report EPS of 93 cents on December 21, 2006. Oppenheimer said "We rate the shares of RIMM Neutral, due to concerns over valuation and the potential long-term impact of competition in the smart phone segment. However, we expect that the company's November & February quarter earnings will be robust, based upon our recent channel checks." RIMM's overall option implied volatility of 58 is above its 26-week average of 41, according to Track Data, suggesting larger risks.


Harrah's Implied Volatility Collapses As Official Deal Announcement Nears

Dow Jones reported a source who indicated that Harrah's Entertainment Inc. (NYSE:HET) would accept a $90 share bid from private equity. HET overall option implied volatility 12 is below last week's level of 18 according to Track Data, suggesting decreasing price risks.


Option volume leaders Monday were: Novellus Systems (NASDAQ:NVLS), Altria Group Inc. (NYSE:MO), Oracle Corp. (NASDAQ:ORCL), and Harrah's.

After languishing for about two months, it looks like the buyout for Harrah's (NYSE:HET) will get some traction. Tomorrow, the company's board will meet to discuss the offers.

The most promising bid (and perhaps the only one) is from Apollo Management and Texas Pacific Group. According to a report from the Wall Street Journal [subscription required], it looks like it will be $87 per share (which is up from the prior bid of $83.50).

The other group includes Penn National Gaming (NASDAQ:PENN), a casino operator that is much smaller than Harrah's, and D.E. Shaw, a major hedge fund. However, it looks like it will be difficult for them to arrange a credible financing package.

True, Harrah's has a great collection of brands and generates lots of cash. But the deal will mean an enormous debt load – making things quite risky. Harrah's has some valuable real estate holdings in Vegas, which could fetch premium prices. That could be used to pay down the debt. In fact, the Motley Fool has a great analysis on this point.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates DealProfiles.com.

With multi-billion dollar buyout deals booming, it's hard to keep a secret. There are a lot of players involved: investment bankers, attorneys, consultants and so on.

For example, several months ago, a friend of mine -- who is the CFO of a software company -- told me that International Business Machines Corp. (NYSE:IBM) was going to buy FileNet. Interestingly enough, the stock price was surging. And, yes, several weeks later IBM did announce a deal to buy the company.

Over the past year or so, it seems that there have been many leaks on big deals. Perhaps people forgot about the insider trading scandals during the M&A boom of the 1980s?

Well, according to a story by Reuters, there was some unusual trading in the stock options of Harrah's Entertainment, Inc. (NYSE:HET) before its $15 billion leveraged buyout was announced.

The article quoted Paul Foster, who is part of the site theflyonthewall.com, as well as Jon Najarian, who manages insideoptions.com.

Maybe the trading activity is an example of smart investors making a savvy bet?

Private equity, in my opinion, is the juiciest of all the financial sectors. While venture capital is more baldly a gamble -- after all, something like 10% of investments actually pay out handsomely -- private equity is a quieter, stuffier, much, much larger gamble. It makes my blood gurgle with excitement.

Private equity firms have been gambling big, of late, and, according to the Wall Street Journal [subscription required] at this wee hour of the morning, they might do even more so by orchestrating an LBO of Harrah's Entertainment, Inc. (NYSE:HET). Naturally, the biggie of all private equity gamblers, Texas Pacific Group, is rumored to be involved in the talks to buy out Harrah's, which has a $12.34 billion market value and $10.2 billion in debt. Now there's some leverage.

While this would certainly be the biggest casino company ever bought out by a private equity group, it wouldn't be the first casino company -- Colony Capital, also rumored to be in on discussions, has bought several properties in Atlantic City and Las Vegas -- or the first huge gamble. After all, there's HCA Inc. ($21.3 billion), in my mind (and I was analyst on many a hospital deal in my time in investment banking) a huge hospital management company like HCA is a huge gamble. In hospitals you have two very egocentric, impossible-to-predict, and money-hungry groups pulling your cash flow this way and that: doctors and the U.S. government. Ick.