I was going to write about something completely different today but that can wait.Something I have been writing about for years 1 2 3 has finally happened at Sky City Entertainment Group [SKC.NZ]. They have ditched their money losing Sky City Cinema Division.
CEO Nigel Morrison hinted at it in an interview I did with him back in September:
SI - The SkyCity Cinema division has always been a challenge, to put it mildly. How do you see its fit within your gaming assets given its poor operating history and low to negative returns over a long period?
NM - As I’ve always said since my arrival at SKYCITY, I don’t believe that SKYCITY Cinemas is a core division of our Group. Our Cinemas team, led by Jane Hastings, has done a good job turning around this division in 2009 and we are looking for better performance again in 2010.
He was a little more revealing off the record at the time but either way this Sky City shareholder is very happy about the news.
With the dropping of the cinema division the company will now be able to focus on the casino assets that made the company a shareholder favourite in the 1990s until early 2000s when this asset started to suck money out of the company and the attention of directors and the former CEO Evan Davies.
They are getting NZ$59 million (subject to due diligence and regulatory approval) from Australia based cinema operator Amalgamated Holdings Ltd [AHD.AU] and the good news is that this excludes land and leases held by the company. Presumably this means that if sold in a February deadline Amalgamated will be paying rentals to Sky City - such a lovely thought!
The cinema division was bought for a total of just north of NZ$100 million years ago and was completely written off on the balance sheet 2 years back, so the realisation of nearly $60 million, plus hanging onto assets in the company actually worth something (the cinemas as such made no money) is a great outcome for the company and its long suffering shareholders.
The only decision to be made now is whether the proceeds of the sale will be used to pay down additional debt or distributed to shareholders as a special dividend - I would support the former.
Sky City shares rose 3c in a down market on larger than average volume on the news, indicating that the market has been looking forward to this result.
Disclosure: I own SKC shares in the Share Investor Portfolio
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