Sky City Entertainment Group Ltd: Premium for Control

Sky City Entertainment Group Ltd [SKC.NZX] the New Zealand based casino and cinema operator has been under speculation of a buyout for about a week now.

A name has finally hit the streets, albeit still unconfirmed, TPG Newbridge, one of the world's biggest private equity funds, with links to Sky City's former operator the casino giant Harrahs.

TPG is in the process of tying up a deal to buy the casino group Harrahs and has also been busy buying up casinos around the world.

Owen Blicksilver, a New York- based TPG spokesman, said that the company would not comment on whether it was considering a buyout of Sky City, which he termed "market speculation".

My only consideration, should this speculation have wings, is the price TPG or any other suitor should pay.

Over the 10 years that I have been invested in the New Zealand Stockmarket, many companies have been bought by foreign buyers and usually at a very cheap price in comparison to similar companies and the sectors that they operate in overseas.

Premiums paid for control of good companies haven't been sufficient but hapless management have fallen over to big incentives and short-sighted business plans. Share holders have simply folded their tent for a quick buck and run to the hills to count their beans.

Recently, the bid by MFS living and Leisure, an Australian Tourist operator, failed when it tried to make a cheap play for Tourism Holdings Ltd [THL.NZX] the New Zealand listed camper van and tourism owner.

Recent bids by Dubai Aerospace International and a Canadian pension fund bid for Auckland International Ltd [AIA.NZX] have come at the lower end of valuations for control of a strategic monopoly.

In 2005 Waste Management, a listed New Zealand trash monopoly, in which yours truly had a sizable stake, was flogged off by management after they had been given incentives by the bidder Transpacific Waste, from Australia.

The company went for a song and profits made by the new owner since would be more than reflected in a higher than sale price share price today had Waste Management still been listed.

In Sky City we have a multitude of assets. Auckland, Hamilton, Queenstown, Adelaide, Darwin casinos owned outright. Part interests in Christchurch and Dunedin Casinos and well over 100 cinema screens.

The company's Casinos in New Zealand are a virtual monopoly with no more likely to be built and the Darwin Casino likewise.

It is true enough that the assets are probably not performing as well as they could and the reasons for that are many and varied but they are exceptional assets when they are well managed.

I don't have much faith in the current board being able to efficiently identify company problems and act with speed and diligence to get the firm back on track. Last weeks debacle over the announcement of buyer interest in the group was another decision that was handled badly and reflects upon the board as such.

Monopolies such as Sky City Entertainment deserve a premium when sold and full control attracts a premium as well.

For this reason management must be urged to get a decent price for the company and not fall for the first attractive bidder with long eyelashes.

Simon Botherway from Brook Asset Management has 8 Million shares in SKC and he and his company has been active in holding out for more in buyouts of holdings that he has had in other company's.

Large institutions like his could press for more should there be a concrete offer made.

I'm hoping any low-ball bid by a potential suitor is going to make him and others very angry.

I will be.


Disc: I own SKC shares in the Share Investor Portfolio


Sky City Convention Centre @ Share Investor

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c Share Investor 2008

Business Gobbledygook puts up Barriers to Communication

At the end of the day, when all is said and done, with all things considered, in the fullness of time and taking the long-term view-urrrggghh-all we want is a straight answer in the simplest way possible.

Nowhere is this more appropriate than in the business world. While speaking to customers, talking to employees, and communicating a message to shareholders. Your message should be clear, precise, unambiguous and be free of unnecessary verbosity and complicated language and "corporate-speak".

My piece today was inspired by two news items of late and they rekindled this subject which has been in the back of my mind for years. The first situation was some of the language used by Telecom New Zealand(TEL) to explain to customers why they had mismanaged a software upgrade to their Xtra Internet unit and the other news story was about Sky City Entertainment's(SKC) explanation of areas of last weeks complicated 2007 FY profit announcement and the confusion that it caused amongst analysts.

In the first instance with Xtra, a spokesman explained that customers were not let down or disappointed with the break in "service" but were instead suffering from "negative surprise". Callers to the Xtra helpline were told in clipped tones when they got testy with Telecom employees over the wait for resumed service that they were experiencing "service disconnection anxiety".

What this kind of language does of course, is to first of all fudge the real issue and spin the heat off the main protagonist, Telecom, and make the customer feel guilty, secondly it has the added bonus of frustrating the customer so much that he gives up on the reason for his call in the first place. This is exactly why this process is used of course because the offending company really doesn't care that much at all about your problem but cant really come out and say that straight.

Telecom are well known for using this kind of spin to run their business, within and outside the company when communicating with customers. For a communications company Telecom NZ don't communicate well at all and indeed there always seems to be a "negative surprise" waiting at the end of the line when one calls the 123 Help line.

Elmar Toime had to spin for his life today to explain issues surrounding last weeks Sky City Entertainment profit announcement:

"The information that was available when I stepped in as manager wasn't enough to assign budgets to individual responsibility areas of the business."

Translation: I didnt do my homework properly.

The SKC profit announcement contained such gems as this one:

"A strategic development plan has been completed for SKYCITY Adelaide which has verified the value of this business and established the path for delivering incremental shareholder value from this property."Huh? we really mean we will try and increase profit but it is going to take a long time and may never happen under my watch.

Don't laugh:

"...a peer review of the Auckland gaming performance and strategy has been undertaken and plans put in place to actively address opportunities..."Does Management usually inactively "address opportunities" ?The word incremental seems to have been carefully chosen because here it is again:

“Most importantly, we are now positioned to ensure that this delivers incremental value to our shareholders and a sustainable future for our people."

Websters dictionary meaning: A slight, often barely perceptible augmentation. In conjunction with the management speak word of the year , the meaningless "sustainable," this sentence really means that profit growth will be small and management don't really know what outcome that will have for the business.

I could trudge through this announcement and pick up more unnecessary management bullshit but even I have a life to lead. You get my point though don't you. Why jazz up communications to shareholders with hackneyed management spin and written clutter?

To be fair to Toime and his company though, this sort of language and company announcement is not rare in New Zealand or overseas. Some companies are much worse and some are better. Mainfreight(MFT), a listed New Zealand trucking company is one enterprise that doesn't indulge in this stuff and I am a well informed and happy shareholder as a result.

When a business, profession or individual chooses to communicate to others in an unnecessary way, as I have explained above, one has to suspect the motives of the communicator. Their verbosity and over complication is probably hiding something. When communicating to shareholders it could be glossing over profits or company prospects, in the case of Telecom ,spin and complication is used to frustrate or fob off customers because of shortcomings in the business structure and with professions such as lawyers, doctors and real estate agents complicated communication is often used to exclude others for economic reasons. If one cannot understand what others are saying someone usually gets paid to decipher this information and it is usually you that pays!!

Politicians are masters at it and we all know they have to be because the skeletons they are hiding require a fair degree of verbal and written dexterity.

In business though, it is most important to "cut the crap" and get to the point quickly and in the most efficient way one can.

In my opinion one can tell the quality of a business by the way they communicate to shareholders, customers and employees. If the communication is fast and efficient the company is likely to be run in the same way.

Of course the opposite is also true.



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Disclosure: I am a shareholder in SKC and MFT




c Share Investor 2007

Sky City Casino: Setting the record straight over Corruption Accusations

With Television New Zealand making accusations of "loan sharking" within Auckland's Sky City Casino complex, motivated by the deep left within the Green Party, for most of last week, it seems the truth, as reported by them maybe somewhat further from the truth.

Accusations were made that Sky City Staff were "skimming jackpots", "prize fixing" and heavily involved in loan sharking seem the views of a "journalists" over active imagination if the following response by Sky City to the accusations from TVNZ are anything to go by:

SKYCITY Sets the Record Straight
TV One news has made allegations this week regarding the integrity of SKYCITY’s operations and its staff with particular reference to alleged loan sharking at SKYCITY Auckland.
SKYCITY has continually provided comment and facts to TVNZ which they have chosen to ignore.
SKYCITY takes any allegations seriously and takes action immediately.
In accordance with these investigations, and advice of the DIA, a person was suspended from the SKYCITY property on Tuesday. This person was not a member of SKYCITY staff as stated by TVNZ. SKYCITY is unable to provide further information on this person due to privacy.
SKYCITY has no evidence of any improper dealings by our staff or in our VIP spaces which are continually monitored by security and surveillance.
SKYCITY is continuing its investigations and has zero tolerance for impropriety of any nature by staff. If TVNZ or any party has facts on which SKYCITY can act, then we encourage them to tell us directly.
SKYCITY wishes to inform all media of the information previously shared by SKYCITY Auckland’s General Manager, David Christian, with TVNZ:
“SKYCITY has extensive polices and leading-edge technology in place to identify and manage undesirable behaviour. For example:
• Extensive surveillance systems are in place and are monitored at all times by highly trained personnel.• There are close working relationships with the DIA, who are on site, and with the NZ Police.• Information is regularly shared with relevant parties - DIA, NZ Police.• Suspicious activity is investigated by SKYCITY’s security and surveillance department and if appropriate reported to the relevant agency.• Suspicions of loan sharking are always investigated. This can lead to exclusion or trespass.• Training programmes are in place to support our staff in dealing with undesirable behaviour. Security personnel receive additional specialised training.• SKYCITY has a professionally skilled team of harm minimisation and host responsibility staff.• Gambling helplines are promoted throughout our casinos.• SKYCITY relies on information from our own investigators, staff, customers, the NZ Police, problem gambling service providers and the government inspectors operating on site. If TVNZ or its viewers have any information relating to undesirable behaviour, then we encourage them to speak to us or the DIA directly and we will take any appropriate action immediately."
SKYCITY reiterates that the casino industry in New Zealand is strictly regulated and supervised by DIA and the Gambling Commission.
SKYCITY respects its license to operate and values its reputation for being a responsible gambling provider - a strong commitment to the safety and security of our staff, visitors and customers underpins all of SKYCITY’s operations at all times. (16 August 2007, Sky City corporate website)

It seems to this market watcher that hysteria has been whipped up by TVNZ just to fill some dead airtime. The TVNZ propaganda machine is an over the street neighbour to Sky City and there are rumours circulating that many staffers from the State Broadcaster have lost considerable sums having a flutter during long lunch breaks and boozy late night sessions after work. It must be remembered that it wasn't long ago that employees of TVNZ were caught out using TVNZ credits cards to rack up huge food and beverage bills at expensive eateries around the town.

Clearly there is a small story here but as is often the case a so-called journalist blows it out of proportion just to make a name. Dont let the facts get in the way of a good story huh?!

It seemed fit to re-print the Sky City reply as I have not seen a printed response to TVNZs muck raking.

These things should be cleared up before concentrating on the real, factual story, that is the Full Year 2007 profit announcement tomorrow 20 August(NZ time)

Until then.


c Share Investor 2007

Disclosure: I own Sky City Casino Shares

Market Musings on the NZX

Market watchers in North America and Europe may well be asleep as I write this. If you were down in this part of the world you would be watching your portfolio drop once again after NZX investors took their lead from you who are asleep at present. The NZX is down 60 points as I write with the ASX down 165.



My portfolio is down almost 20% from this years highs and the bulk of that drop has been in the last two weeks.

Fear has gripped our market and our dollar cross with the US dollar has fallen from an all time high of over 81c to less than 70c as I write because foreign investors are moving their Kiwi investments offshore for "safer" risks.

I am not selling and will not sell but my main problem at the moment is when to buy more of what I already hold. There are 4 stocks out of the 11 that I hold that have fallen below their original purchase price but they seem to becoming cheaper and cheap by the day. I wait with my finger poised on the buy button on my computer screen.

One stock I am looking at more closely, now that the Summerset Retirement float has been cancelled today, is my holding in Ryman Healthcare (RYM) the Retirement home operator. It is looking tasty but could go lower.

Opportunities also abound in NZs Blue chips. Telecom New Zealand(TEL) is due a 14c dividend soon and is trading well down. Fletcher Building (FBU) has been given a right troweling as of late, with a 23c dividend due and Sky City Casino (SKC) has its chips down a few days before their full year announcement on Monday 21 August.

Auckland International Airport (AIA) has news that just over 6% of its shares have been purchased by Infratil (IFT) in conjunction with a Government Retirement fund, a potential blocker of a merger between AIA and Dubai International Aerospace. Strangely AIA shares are up today.

Steel and Tube (STU) the steel maker and supplier, have announced a 10% profit decrease today on increased business costs and increased revenue. A 14c dividend waits in the wings for STU shareholders.

Fisher and Paykel Appliances(FPA) has announced that they are moving their electronics division to Thailand. It will share a factory roof with the washer division that announced plans to move there earlier this year. 96 jobs will go from South Auckland with a saving to FPA of 6 million dollars.

Meanwhile the Labour Government is in trouble with its voters because the partially State owned and listed airline , Air New Zealand (AIR) has been carrying Australian troops to get them to theatres of war in the Middle East, something that cuts against the beliefs of Labour ministers and a minority of over vocal New Zealanders. The share price landed sharply.

On a much lighter and perhaps tasty note, for the third day in a row Burger Fuel(BFW) has failed to trade.



www.shareinvestorforum.com





  c Share Investor 2007

Business Mis-Management

The recent and distant past of company management and its track record in New Zealand leave a lot to be desired.

While the calibre of management in selected companies listed on the NZX is clearly very good: Mainfreight Ltd [MFT.NZ], Pumpkin Patch, Michael Hill, Fletcher Building, Rakon among a shortlist, the great bulk of management is littered with far too many candidates for the top prize of mis-manager of the year.

On the negative side the list includes Feltex at the top followed by Restaurant Brands ,with Telecom, The Warehouse(previous Management)Tourism Holdings and Sky City all worth a mention.

The bottom rung seem to share some common traits. Basic bad decision making, at times it is part of the culture- Telecom, in Feltex Carpets case bad decision making was endemic and used to cover up problems, Restaurant Brands suffers from a culture of denial when it comes to decision making-witness the complete ignorance of store level service, Tourism Holdings simply couldn't make a decision as to what their problems were caused by and Sky City Ltd [SKC.NZX] has made a hastie decision to buy a cinema unit that drags down profit and is capital hungry for no return but they refuse to make the decision to let go and cut lose a bad business.

The Warehouse's woes were widely canvassed but they suffered from a man,Tindall, that rushed into a new business with too much confidence, ignoring basic differences in the shopping culture of 2 different countries.

Managers are paid to manage and that means, as much as possible, decisions being made at the right time and in the right direction as consistently as possible. When managers begin to garner a track record of bad decision making, it is time to look at the problem, fix it if possible or move that manager on if an easy fix isn't possible.

Shareholders need to have a means of making their opinions known to those who manage their investment in the company they have bought and apart from the likes of Bruce Sheppard from the Shareholders Association, the rest of us appear to be sheep when it comes to standing up for our vote on the board.

The buck stops with the person at the top rung of management but a clear stumbling block with our listed and private companies is the bottleneck of middle managers ,who often serve the purpose of mere relay people, of information from productive workers on the shop floor to those executives at the top. We could do with less of these people in our companies, in my humble opinion they can confuse the clear messages that must get through from upper management to shop floor and back in order for a company to function efficiently and competently.

Restaurant Brands suffers from this syndrome in spades. Store workers don't get to communicate clearly as to what is going on at store level directly to upper management, problems are filtered through a multifaceted layer of store, area and regional management before getting operating concerns to the top.

Of course RBD store managers often don't have the motivation to let upper management know if there are problems at store level anyway, lest they be in the gun themselves. This happens to a lesser extent in other New Zealand companies but is still clearly a problem. Telecom suffers badly from the same syndrome.

The solutions to our problems may lay in what Toyota calls the "Toyota Way" that is, where there is a free flow of reciprocal critical information between upper management and productive workers. In essence this means that a shop floor worker has access directly to upper management and vice versa.

Like a pyramid of cheerleaders whispering advice from the bottom of the pile to the top, by the time it gets there the message is often completely different from its original form. Remove the middle of the pyramid and it will collapse but remove middle management from the management pyramid and it will serve to make the company stronger.



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c Share Investor 2007