The board approved a $90-per-share buyout offer from Apollo Management Group and Texas Pacific Group and recommended shareholder approval even as the company reserved the right to pursue even higher bids for about a month.
The buyers are also assuming $10.7 billion in debt in the deal.
It would be the largest going-private deal ever for a publicly held casino company and the seventh biggest leveraged buyout deal of any kind of company.
The $90 a share buyout offer was a 36% premium over Harrah's closing price on Sept. 29. That was the last trading day before the casino company announced Apollo Management and Texas Pacific had offered $81 per share Oct. 2 to take the company private.
The new owners planned to continue with Harrah's management team and with large-scale redevelopment plans for properties in Las Vegas and Atlantic City, N.J., chief executive and Gary Loveman told The Associated Press after the deal was announced.
"We've had some discussions about capital availability for these kinds of projects," Loveman said. "We're confident that we will be able to pursue our master plan objectives in Las Vegas and in Atlantic City."
No property sales were being considered, he said.
A special committee of Harrah's board, which excluded Loveman and vice chairman Charles Atwood, had been meeting in New York since last week after the company set a Tuesday deadline to receive offers.
Harrah's said the deal was expected to be completed in about a year but said its special committee would continue to solicit third parties for a possible higher bid for the next 25 days.
Morgan Stanley analyst Celeste Brown said in a research note the company was not likely to find a better offer.
"We believe Harrah's board did everything it could to maximize the price," she said. "Given the extensive process that led to this agreement, we wouldn't expect any more offers to be announced."
Penn National Gaming Inc., a Wyomissing, Pa.-based race track and casino operator, was eliminated from the bidding with its reported mostly cash bid of $87 per share. A Penn spokesman declined to comment.
Apollo and Texas Pacific agreed to pay shareholders an extra 1.973 cents per share every day starting March 1, 2008, if the deal had not been completed by then, minus any part of a quarterly dividend of 40 cents a share paid on or after that date.
Texas Pacific founding partner David Bonderman said he believed the private equity pairing would be able to "help Harrah's deliver on its growth strategy" with a long-term perspective.
Harrah's shares rose 14 cents to $82.32 Tuesday on the New York Stock Exchange before trading was halted for news of the deal, which came after the markets closed.
Harrah's also has a presence in the pari-mutuel industry with horse and dog track holdings. Among them are Harrah's Louisiana Downs, a Thoroughbred track, and Harrah's Chester Downs, a harness track in Pennsylvania. Harrah's also is half-owner of Turfway Park in Kentucky.