Bidding war intensifies

Toby Anderson

Thursday, April 8, 2004 | 11:10 a.m.

MGM MIRAGE of Las Vegas today raised its offer for Wembley Plc to 301 million pounds ($555 million) in cash, topping a bid from BLB Investors LLC as the U.S. companies vie for control of gambling venues in Britain.

MGM, the third-biggest U.S. casino company, agreed to pay 840 pence for each Wembley share, MGM spokesman Rollo Head said in an interview. BLB Investors, a company formed by financier Barry Sternlicht's Starwood Capital Group LLC, Kerzner International Ltd. and Waterford Group LLC, bid 800 pence last month. MGM's first bid in January was 750 pence.

MGM MIRAGE is bidding for Wembley's Lincoln Park dog track in Rhode Island and its dog tracks in London, Birmingham and Manchester, sites the company may expand into casinos if the U.K. relaxes gambling regulations. British lawmakers Wednesday proposed allowing casinos to add more slot machines and abolishing rules that patrons must be members to wager.

"Deregulation offers further opportunity for companies to grow their businesses within the U.K.," said London-based Richard Staveley, a fund manager at SG Asset Management, which manages about $286.5 billion and no Wembley shares. "You can see from the appetite of overseas investors there are very high returns for your money."

Shares of London-based Wembley rose 13 pence to 871.5 pence at 11:21 a.m. in London today. Wembley's stock price shows investors expect a higher counter offer from BLB, said Lisa Woodfin, an analyst at Robert W. Baird Ltd. in London, who rates the stock "outperform."

BLB, a closely held real estate investor based in Greenwich, Conn., said in a statement it's "considering its options."

MGM MIRAGE, which gets about two-thirds of its profit from Las Vegas casinos including the Bellagio, said in October it may spend 150 million pounds to build a casino and mall on a 300,000-square-foot site in London's Hammersmith, in partnership with Earls Court and Olympia. MGM MIRAGE trails Caesars Entertainment Inc. and Harrah's Entertainment Inc. in annual revenue.

"Our increased offer is unanimously recommended by the Wembley Board and its value is clearly superior to that of BLB's offer," MGM MIRAGE Chief Executive Terry Lanni said in the statement. "We believe that Wembley shareholders will recognize this and accept the increased offer."

The Joint Committee on the Draft Gambling Bill made recommendations to overhaul 35-year-old legislation by allowing all casinos to offer bingo and betting and by permitting operators to install larger numbers of gaming machines.

"The level of interest in gambling in the U.K. has really picked up and people are beginning to realize there's greater value there," said Justin Urquhart-Stewart, who helps manage about $552 million at 7 Investment Management in London.

The committee said it supported lifting advertising restrictions for casinos and ending a 24-hour "cooling off" period for new members. It also recommended that casinos with more than 10,000 square feet and 41 gaming tables have a higher fixed ratio of machines to tables.

Changing the country's gambling laws may boost Britain's annual gambling revenue to $2.3 billion, Lehman Brothers analysts estimate.

The government "remains keen to bring the bill back before Parliament as soon as we can, having taken careful account of the committee's advice," Tessa Jowell, the secretary of state for culture, media and sport, said Wednesday in London.

About 80 percent of Britons gambled in the past year, according to data from Gamcare, a U.K. organization that monitors gambling. In the U.K., 4 percent of people visit a casino each year, compared with 25 percent in the U.S.

Wembley also owns the Lincoln Park greyhound track in Rhode Island and three greyhound tracks and a horse racing track in Colorado. The company said in February that 2003 net income declined 14 percent as changes to Rhode Island tax rules cut the company's share of revenue from video-lottery terminals.

Wembley is the former owner of the Wembley Stadium sports venue near London. The company sold its Wembley Arena music venue in 2002 to focus on its gambling venues.

Lanni has said that MGM MIRAGE's interest in Wembley is twofold in that it would involve acquiring a lucrative track in the United States as well as opportunities in the United Kingdom.

During a conference call with investors this week to discuss gambling deregulation in Britain, Merrill Lynch analyst Ian Rennardson declined to speculate on MGM MIRAGE's primary motivation for the deal but said the Lincoln Park track generates more than 90 percent of Wembley profit and that developing casinos at Wembley's dog tracks would be "quite expensive."

Former Chief Executive Nigel Potter and the head of the company's Rhode Island dog track were indicted Sept. 10 by a U.S. grand jury for conspiring to bribe state officials.

According to an indictment, Potter and Lincoln Park Inc. Chief Executive Daniel Bucci conspired to give money to the law firm of former Rhode Island House speaker John Harwood, who wasn't indicted, to allow Wembley to install more video lottery terminals at the track. Potter and Lincoln Park denied the charges.

Starwood's Sternlicht is best known for acquiring a money-losing hotel real estate investment trust called Hotel Investors Trust in 1995 and, through a series of acquisitions such as the Westin Hotel chain and ITT Corp., turning it into Starwood Hotels. Starwood Capital owns the biggest golf course operator in the U.S. with Goldman Sachs Group Inc.

Shares of Paradise Island, Bahamas-based Kerzner fell 30 cents to $46.10 at 9:50 a.m. in New York Stock Exchange composite trading. Las Vegas-based MGM MIRAGE shares fell 1 cent to $47.08.