(Bloomberg) -- Entain Plc, the London-listed gaming company that operates Ladbrokes, is being criticized by a shareholder for its “illogical” decision to fund its acquisition of STS Holding SA with an equity sale.

Eminence Capital said in a letter reviewed by Bloomberg News that the company’s decision to fund the STS deal with an equity sale that represented about 8% of its market capitalization was “perplexing on many levels” as well as “value destroying.” The New York-based asset manager questions why Entain, which had rejected multiple takeover approaches at higher prices saying they undervalued the company, would turn around and issue equity at depressed prices for an asset that is at best “nice to have.”

Eminence Capital said it has been an investor in Entain since 2020 and owns about 2.1% of its stock.

“We have been explicit that Entain has earned the right to continue its pursuit of strategic targets within the global online gaming industry, but that equally important is funding these deals with the lowest cost of capital,” Eminence Capital said in the letter dated Friday. 

A representative for Entain declined to comment.

Entain launched a tender offer this week to acquire STS at 24.8 zloty a share, valuing the Polish sports-betting operator at about £750 million ($959 million). It raised about £600 million to fund the purchase, according to a filing.

Entain shares have fallen about 10% since the deal was announced, giving the company a market value of about £7.7 billion. The shares closed Thursday at 1,202 pence each, down from an all-time high of 2,500 pence in 2021.

“The market reaction to this equity offering should be a wake-up call to Entain’s tone deaf board and management team,” Eminence Capital wrote in Friday’s letter, adding that shareholders are now likely to support a sale of Entain to MGM Resorts International as they lose confidence in the company’s ability to allocate capital and create long-term value. 

In addition to Ladbrokes, Entain operates sports books across Europe including Eurobet, plus BetMGM, a joint venture with the gaming giant in the US. It also operates online gaming brands such as Partypoker, as well as business-to-business services. 

Eminence Capital, founded by Ricky Sandler in 1999, manages about $6.5 billion of investments. 

--With assistance from Swetha Gopinath.

©2023 Bloomberg L.P.