Harrah's Entertainment (HET) and Caesars Entertainment (CZR), seeking to win regulatory approval for their proposed merger, Tuesday said they are in talks to sell four casinos, a deal that one person familiar with the negotiations said could be worth $1.25 billion.

Harrah's and Caesars said they were in preliminary talks with Colony Capital (search), a privately held company that recently bought the Las Vegas Hilton, but it also noted other potential bidders.

The potential $1.25 billion price for the casinos exceed many Wall Street expectations, giving the stocks of Harrah's and Caesars a slight boost.

The sale is aimed at soothing federal and state antitrust regulators as Harrah's seeks to buy Caesars for $5 billion in one of two casino megamergers announced since June.

The strong emergence of a private bidder surprised some industry watchers who had expected any assets sold by Harrah's and Caesars, or rivals MGM Mirage (MGM) and Mandalay Resort Group (MBG), which have also agreed to merge, to be picked up by smaller public casino operators.

Los Angeles-based Colony, headed by Tom Barrack, has signed a letter giving it certain rights in talks to buy Harrah's East Chicago, Harrah's Tunica, the Atlantic City Hilton and Bally's Tunica, the sellers said.

Colony already owns the Resorts casino in Atlantic City and recently bought the Las Vegas Hilton from Caesars.

The person familiar with the discussions told Reuters on Monday an agreement was signed on Aug. 27, giving Colony exclusive rights for about three weeks to negotiate a deal, and that Colony had indicated it might offer about $1.25 billion for the four casinos.

Colony has not made a formal offer and there are at least two other bidders, the source added.

Analysts said the potential price of the deal was a good sign for the industry, since it valued the four casinos at earnings multiples above those of both of the sellers and smaller casino companies.

The fast entrance of private bidders also showed that smaller public casino companies would face strong, and to some extent unexpected, competition to buy properties sold by the merging industry leaders.

The estimated price is about 8.5 times the properties' estimated earnings before interest, tax, depreciation and amortization. UBS analyst Robin Farley previously had estimated Harrah's and Caesars would sell the assets for $850 million to $900 million, or closer to six times EBITDA.

The person familiar with the talks said Harrah's and Caesars would probably sell other assets to convince federal antitrust regulators that they would not have a stranglehold on the burgeoning casino industry or in key markets.

Banc of America Securities analyst David Vas said in a research note that more sales could be forthcoming in Atlantic City, Tunica, smaller Nevada towns and the Lake Tahoe area, and potentially even Las Vegas itself.

"Private buyers have muscled their way on to the scene" as bidders, with surprisingly high offers, he said. "If Colony seals the deal, the yard sale would be picked over, but probably not finished."

Last week the Federal Trade Commission (search) signaled it would closely study Harrah's plans to buy Caesars, issuing a second request for information from the companies.

Caesar's rose 50 cents, or 3.35 percent, to $15.42, and Harrah's rose 86 cents, or 1.82 percent, to $48.14, on the New York Stock Exchange in afternoon trading.