US giant gambles on Gala Casino merger

Published on Friday 8 February 2008 09:12

THE American casino giant Harrah Entertainment is understood to have made a tentative approach to the owner of Gala Casinos regarding a possible merger with its UK casino chain.

The group wants to create a 40-casino company consisting of Harrah's London Clubs International (LCI) and Gala Coral Group's Gala Casinos, which runs the Gala Maybury in Edinburgh.

Any merger would create a major challenger to the Stanley casino chain, which owns the Maxims Casino on York Place and Circus Casino at Fountainpark on Dundee Street. The new group would also overtake Rank's Grosvenor Casinos as the second-biggest operator in the UK. Analysts expect that any merger would throw up limited competition issues.

LCI made a similar approach only three months ago to Rank over the possibility of swapping its LCI business for a 28 per cent stake in the enlarged Rank group, although the proposal is said to have received short shrift by Rank chief executive Ian Burke.

Analysts say that it is unclear at this stage whether the latest move by Harrah involves a similar assets-for-equity swap or whether it would be an outright sale of LCI.

LCI was acquired by Harrah, which owns Caesars Palace in Las Vegas, in 2006 for 300 million as it attempted to push into the UK gaming market.

It this week opened one of its Alea branded casinos at Glasgow's Springfield Quay. It is also planning new casinos at Nottingham and Leeds. Harrah has invested heavily in its LCI chain since buying it, although the downturn in the UK casino industry is expected to make it difficult to recoup its investment in the event of a sale.

But Harrah has recently been taken private by Apollo Management , and the private equity firms are thought to have insisted on reigning back spending on its European expansion after the credit crunch made it more difficult to syndicate debt funding. It has been pursuing "supercasino" developments in Spain, Slovenia and Hungary.

The casino industry is also said to have been hit hard by the smoking ban, first introduced in Scotland before being extended to other parts of the UK last year.

Leisure group Rank said in December that the ban, as well as "restrictive" changes to gaming regulations, led to further revenue cuts across the group. Like-for-like revenues at its Grosvenor Casinos was down four per cent.

The news of the possible merger approach came as Genting, the Malaysian owner of Stanley Casinos, announced that it had increased its stake in Rank from 10 per cent to 11.03 per cent, prompting further takeover speculation.

Edinburgh's casino industry is tightly controlled, and Stanley was only given permission by the city's licensing board to open a new casino at the former Eros/Elite nightclub at Fountainpark when it promised to close the Stanley Berkeley on Rutland Place.

Grosvenor Casinos' bid to turn the former Palais de Danse in Fountainbridge into a casino has been turned down by the licensing board twice.

Gala Coral and Harrah declined to comment on the merger talk, although a source close to Gala said the company was regularly approached about possible deals, most of which came to nothing.