LONDON (MarketWatch) -- Harrah's Entertainment Inc. said Thursday it's agreed to buy casino operator London Clubs International for $530 million, marking the first step by the world's largest gaming operator into a reinvigorated U.K. casino market.
British casino operators are undergoing their biggest upheaval in years. Deregulation has meant membership requirements are being scrapped and advertising restrictions are being cut.
Las Vegas-based Harrah's (HET : Harrah's Entertainment, Inc. said the board of London Clubs has unanimously recommended the deal. Valued at 125 pence a share, it equates to a 27% premium over Wednesday's closing price of 98.75 pence.
Shares of the U.K. firm jumped 34.4% to 132.75 pence in London, indicating that some investors believe another bid could be in the cards. Shares in Harrah's added 1.8% in early Wall Street trading.
But Greg Feehely, an analyst at Altium in London, said investors looking for a further bid are likely to be disappointed.
"It's a very full price," said Feehely. "It's over 50 times next year's earnings."
London Clubs operates six U.K. casinos as well as two in Egypt and one in South Africa. It also has licenses to develop a further five properties.
Those licenses could be very valuable, especially one that would allow the firm to operate a casino in Leicester Square, the bustling hotspot for London's nightlife.
"That site probably has the potential to be one of the most profitable casinos in the U.K.," said Feehely.
London Clubs has also been a target for U.K. gaming company Stanley Leisure (UK:SLY: news, chart, profile) , which said in June that it was in talks over a nil-premium merger with the casino operator.
But Stanley Leisure said Thursday that, following the announcement by Harrah's, it has ended talks with London Clubs.
Stanley Leisure's shares rallied 5.9%, due to a mixture of relief that the firm won't get involved in a bidding war and speculation it could itself become a target for another big U.S. operator, said Feehely.
Stepping stone to Europe
Harrah's said the deal, which it expects to close in the fourth quarter of 2006, will also provide a base for exploiting further opportunities outside the U.S.
The group made its first inroads into Europe last year when it announced joint ventures to develop casinos in Slovenia and Spain.
"London Clubs' management strengthens Harrah's existing team, allowing for continued international expansion," said Gary Loveman, chairman, CEO and president of Harrah's, in a statement.
Gambling has been a big business in the U.K. for years through traditional sports bookmaking firms such as Ladbrokes (UK:LAD: news, chart, profile) and William Hill (UK:WMH: news, chart, profile) and more recently through a slew of Internet poker operators, such as Party Gaming (UK:PRTY: news, chart, profile) .
Casinos, however, have lagged, burdened by strict rules on membership and advertising as well as limits on the number of slot machines that casinos can offer. But many of those restrictions are being lifted or relaxed, a move that will pave the way for larger, resort-style casinos in the country.
Indeed, the U.K. government in May published a short list of possible sites for the country's first "super-casino," which will have a floor space of at least 5,000 square meters.
The original U.K. plan for eight such facilities was scaled down after opposition in parliament, but more of the giant gaming centers could be introduced in the future.
Harrah's said Banc of America Securities is acting as its sole financial adviser on the London Clubs deal.