Wembley gaming deal canceled

Toby Anderson

Tuesday, July 6, 2004 | 9:15 a.m.

Starwood Capital Group LLC and casino operator Kerzner International Ltd. abandoned plans Monday to buy Wembley Plc, a U.K. owner of dog tracks, for $536 million because of the "political environment" surrounding Lincoln Park, a Rhode Island race track that generates 90 percent of Wembley's earnings.

Wembley shares plunged 36 percent, their steepest decline in 14 years. BLB Investors LLC, a company formed by financier Barry Sternlicht's Starwood, Kerzner and Waterford Group LLC in April offered 860 pence a share for London-based Wembley, trumping a bid from MGM MIRAGE after a three-month takeover battle.

Starwood is dropping the bid amid concern about competition from Harrah's Entertainment Inc., which wants to build a $600 million casino in Rhode Island. Wembley in February said the possibility of a new casino in the state posed the "most immediate threat" to Lincoln Park. A public referendum on Harrah's proposal will be held in November this year, if the Rhode Island Legislature overrides the governor's veto of a bill calling for the vote.

"The money is in Lincoln Park and the reason why BLB has walked away is in Rhode Island," said Roddy Campbell, chief executive officer of Cross Asset Management, which oversees the equivalent of about $400 million of equities in London.

Investors with 78.3 percent of Wembley's shares agreed to sell, less than the 90 percent required by the offer. BLB let its bid lapse and said "the political environment" of Lincoln Park "has become highly uncertain." BLB spokesman Andrew Honnor declined to elaborate in a telephone interview.

Shares of Wembley dropped 309.5 pence to 541.5 pence in London, giving it a market value of 186 million pounds.

Rhode Island Gov. Don Carcieri last week vetoed a proposed vote on a plan by Harrah's Entertainment Inc. to build a $600 million casino in the state with local partners. State legislators say they have enough votes to override the veto, which would bring in competition to Lincoln Park's business.

Wembley owns Lincoln Park in Rhode Island and three greyhound tracks and a horse-racing track in Colorado. In its April offer, BLB said the bid was conditional on Lincoln Park having "full force and effect on terms and conditions (including tax) which are no less favorable in any material respect than those currently enjoyed by Wembley."

Harrah's has agreed in principle to pay a $100 million licensing fee and a tax rate of between 25 percent and 40 percent over 10 years. Lincoln Park pays tax of 60 percent on revenue from video lottery terminals.

In May, rival Wembley bidder MGM MIRAGE said it wouldn't increase its $555 million offer for Wembley in the face of BLB Investors' higher bid. But the Las Vegas-based company said at the time it could restart the process if BLB Investors failed to complete the deal.

MGM MIRAGE spokesman Alan Feldman said Monday that his company was not pursuing Wembley.

"Our proposal to acquire Wembley was withdrawn some time ago when BLB made a higher offer," Feldman said. "We have since moved on to other transactions."

Wembley will make a "detailed" announcement later, it said in a Regulatory News Service statement. The company also said its businesses' performance is meeting forecasts.

"Wembley has a strong business in the U.S. and U.K.," said Wembley spokesman Matthew Smallwood in an interview. "There's no change to that."

"We are clearly disappointed at this outcome," said Jeff Dishner, Starwood managing director, in a Regulatory News Service statement. "However, BLB Acquisition remains a 22 percent shareholder in Wembley and is committed to working with Wembley to maximize shareholder value over the long term."

Government proposals to relax gambling laws drew U.S. suitors to Wembley's dog tracks in London, Birmingham and Manchester. The U.K. is considering allowing gambling venues to add more slot machines and abolishing rules that patrons must be members to wager. The changes may boost Britain's annual gambling revenue to $2.3 billion, Lehman Brothers Inc. analysts estimate.

Starwood Capital, a closely held real estate investor trust based in Greenwich, Conn., is headed by Sternlicht, 43, founder of Starwood Hotels & Resorts Worldwide Inc., the owner of the Sheraton and Westin chains and a partner in a bid to buy the bankrupt Aladdin resort on the Las Vegas Strip. Kerzner, based in Paradise Island, Bahamas, owns the Atlantis Resort there and also operates resorts in Mexico and Mauritius. It developed the Mohegan Sun casino in Connecticut with Waterford.

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

According to an indictment, Potter and Lincoln Park CEO Daniel Bucci conspired to pay 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.

British lawmakers made proposals in April to further deregulate the country's gambling industry. The Joint Committee on the Draft Gambling Bill made recommendations to overhaul 35- year-old legislation by, for instance, allowing all casinos to offer bingo and betting and by permitting operators to install larger numbers of gaming machines.

New legislation may boost the number of casinos in Britain to 185 from 129, Bear, Stearns & Co. analysts in London have said. They expect laws to be implemented in 2006. About 80 percent of Britons gambled in the past year, according to data from Gamcare, which monitors gambling. In the U.K., 4 percent of people visit a casino each year, compared with 25 percent in the U.S.

The Associated Press

and the Las Vegas Sun contributed to this report.