updated 8/31/2004 7:47:12 AM ET 2004-08-31T11:47:12

Harrah's Entertainment Inc. and Caesars Entertainment Inc. have begun negotiations to sell four casinos to a group led by a real estate investment company, a move intended to help reduce antitrust concerns involving their recent merger agreement, two sources familiar with the negotiations said Monday.

The deal involves selling the Harrah's casinos in Tunica, Miss., and East Chicago, Ind., to the group led by Colony Capital LLC, one source said.

The other two properties are the Caesars-owned Bally's casino in Tunica, Miss. and the Atlantic City Hilton, the other source said.

That source confirmed that Los Angeles-based Colony has signed an agreement with the gambling giants that gives it the exclusive right to offer a bid on the four properties for a period of time less than 30 days.

But the sources, who spoke on the condition of anonymity, said Colony is not the only company interested in buying the properties.

The Wall Street Journal reported late Monday that the deal was worth about $1.26 billion, citing several people familiar with the deal.

Harrah's and Caesars spokesmen declined to comment Monday.

Last week the Federal Trade Commission asked Harrah's and Caesars for additional information regarding their merger. Under terms of the deal, Harrah's will pay $1.8 billion in cash and exchange about $3.4 billion in Harrah's stock for all shares of its Las Vegas-based rival.

Harrah's also will assume about $4.2 billion in Caesars debt.

Antitrust experts, along with Standard & Poor's, have said they expect Harrah's to sell off casinos in some states.

In Indiana, Harrah's would own three gambling licenses but regulations permit ownership of only two plus 10 percent of a third, according to Standard & Poor's.

Harrah's Entertainment, which operates heavily with riverboat casinos, has 28 casinos in 13 states under the Harrah's and Showboat names. It has about 41,000 employees.

Caesars has 28 properties worldwide, including Caesars Palace and Bally's Las Vegas, and employs 54,000.

Caesars recently completed the sale of the Las Vegas Hilton to an affiliate of Colony Capital for about $280 million.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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