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NZ's Sky City Says Second Potential Bidder Emerges

CNBC.com
Tuesday, 16 Oct 2007 | 10:28 PM ET

New Zealand casino operator Sky City Entertainment Group said on Wednesday it expected another company to examine its books, which could result in a takeover bid.

Sky City, a top ten company, is already being scrutinized by a potential unnamed bidder, who is due to make a decision on a bid by the end of October.

Elmar Toime, executive director of Sky City told 'Asia Squawk Box' that one party was currently doing due diligence. "They've expressed interest in possibly taking over the entire company. In the meantime we've been trying to rebuild and reposition the business and make it grow. The other party thinks it's a good business with good potential. Where it goes from there, I couldn't tell you at the moment", Toime said.

Bidding for SkyCity
Elmar Toime, executive director of SkyCity Entertaintment Group speaks to CNBC's Martin Soong and Amanda Drury about the bid for SkyCity in Squawk on the Road: New Zealand

Chairman Rod McGeoch said in a statement, "The company continues to caution shareholders that there is no assurance that any of the approaches received will result in any specific transaction."

Shares in Sky City, which has a virtual monopoly on casinos in New Zealand and also operates Australia, last traded up four cents or 0.8 percent at NZ$5.37, having gained 9.8 percent so far this year, compared to a 6.4 percent rise for the benchmark top 50 index.

Private equity or global gambling operators have been touted as the most likely source of bids. Analysts say a private equity bidder could offer up to NZ$5.75, while a trade bidder may go as high as NZ$6.40, which would value the company at NZ$2.9 billion (US$2.2 billion).

The first approach from an unknown company, tipped by local media as likely to be private equity firm TPG, was in late September, with the company expressing an interest in acquiring Sky City in an all-cash offer at a significant premium to the then market price.

Australian competitors of Sky include Tabcorp Holdings, Tattersall's and Publishing and Broadcasting. Both Tabcorp and Tattersall's have said they are not interested.

Sky City has a current enterprise value-to-earnings before interest, tax, depreciation and amortization (EV/EBITDA) of 11.7, compared to a ratio of 10 for Tabcorp, and 13.7 for Tattersall's.

Citigroup has said in a report that recent Australasian casino deals had an average EV/EBITDA ratio of around 10 times.

In May, Sky City unveiled a program of cost cutting and possible asset sales after posting disappointing results, which led to the chief executive quitting in June.

Toime candidly admitted that the company had not performed well. "Our last financial year was pretty disappointing. The main reason is that we've undertake a very significant refurbishment NZ$40 million program, running almost 18 months. That has been very disruptive for our customers and that's slowed things down altogether," Toime said.

But Toime added that, "We think when we come out of that next year, we will have a very spectacular venue and that will reawaken interest."