Share Investor

Wednesday, September 26, 2007

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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Sky City Convention Centre Expansion a Money Loser: Part Two
Sky City Convention Centre Expansion a Money loser
SKC Convention Centre power-point slide illustrations & SKC submission to Auckland City Council

Sky City Entertainment Group @ Share Investor

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Morningstar Revalues Sky City Entertainment Group
Guest Post - Michele Hewitson Interview: Nigel Morrison
Failed Sky City bid for Christchurch Casino good news for Shareholders
Sky City Entertainment Group Ltd: Christchurch Casino bid falls short of Investment Criteria
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Sky City Annual Meeting & 2011 - 2012 Profit Forecast
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Share Investor discusses Convention Centre proposal with CEO Nigel Morrison
Share Investor Q & A: Sky City CEO, Nigel Morrison
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Sky City Convention Centre Expansion a Money Loser: Part Two
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Sky City Entertainment 2008 Full Year profit results , NZX release, 2008 full year presentation, result briefing webcast, financial statements
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Discuss SKC @ Share Investor Forum
Download SKC Company Reports

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c Share Investor 2008

Friday, September 21, 2007

Share Investor's Friday Free for all: Edition 4

Safety in Numbers

The week began with Rabobank defying the depressed debt market raising NZ$900 Million after initially wanting to raise $400 Million. It just goes to show that quality wins out every time and money that has been pulled from shaky finance companies has found a new safe home.

Pumpkin Patchy

Pumpkin Patch (PPL) the trendy New Zealand children's clothing retailer, reported a full year 2007 profit slightly down for the 2007 year to $27 million. Revenue was up strongly but expansion costs, high interest rates, wages and other fixed business costs rose.

The Patch is bullish on expansion, especially in the USA and is expecting a better contribution from New Zealand and Australia next year.

10-4, looks like we got a convoy

Mainfreight (MFT) the ever growing New Zealand trucking company this week plunked down US $53.7 million for the US international freight forwarder and logistics provider, Target Logistics which is publicly listed on the US Stock Exchange.

Mainfreight Boss Don Braid said the transaction would provide Mainfreight with a foundation for further growth in the US and international freight markets.

The purchase will be earnings positive and continues the companies wish to grow the company substantially by clever acquisitions and organic growth.

Sales grow slowly at fast food company

Restaurant Brands (RBD) the operator of KFC, Pizza Hut and Starbucks had a better sales report this week.

The company today reported second quarter sales across its three New Zealand businesses up 5.8 per cent to $93.6 million, with same store sales up 5 per cent.

KFC sales were up 11.7 per cent for the 16 weeks ended September 10, compared to the second quarter a year earlier. Despite recent stellar sales increases KFC sales are still well off historical sales figures when adjusted for inflation.

Starbucks Coffee was up a steady 6.7 per cent for the second quarter from a year earlier, while Pizza Hut began to improve but still produced an overall sales decline of 7.5 per cent.

It looks like the profit announcement in October, which should be allot better than last reporting, will push the share price closer to the $1 mark, the market has valued the stock at less than a buck for most of the year, don't count your chickens yet though.

Can Canadians Fly?

Not content with just flicking through and buying Telecom's Yellow Pages, another Canuck pension outfit is in town to make a bid for New Zealand's largest airport.

The Canada Pension Plan Investment Board says it has come up with three options for acquiring a significant minority stake in Auckland International Airport Ltd(AIA)

They include an all cash option of $3.70 per share.

The other two options, which would provide a value of up to $3.90 per share, would involve a combination of cash and the issue of new securities that provided enhanced returns while preserving the investment grade rating of AIAL.

The market saw the shares increase in price to around $3.30 on the day of the announcement so it has probably factored in a likelihood that this deal isn't necessarily going to fly.

In my opinion, local and central government opposition will sink any possible deal.

Shame really, while Canadians are a little odd at times they certainly get my approval over AIA's last suitor Dubai Aeronautical Enterprise.

Time for a climate change

The nonsense that was the New Zealand Labour Party's Carbon Trading and tax plan to ameliorate the non-existent "global warming" problem hit Kiwis right between their wallets on Thursday.

The thirst by socialists for more of our tax money was outlined by David (eyes closed) Parker the Climate Change Minister.

Consumers will pay more for oil, gas, electricity and just about everything else we buy, unless they are low income earners and then the middle classes will simply subsidise these individuals so they can continue to pollute.

I am reminded of the failure of "fairy dust" schemes like carbon trading that have come crashing down in the past.

From the great tulip bulb craze in Europe in the 1600s to the Carbon Trading scheme invented by Enron in the 1990s. Both of these failed, miserably.

The taxes placed on our economy with the excuse of global warming by the present government are likely to do the same.

Waiting for the Ace Card

Casino and cinema operator SkyCity Entertainment Group(SKC) has received a takeover bid from an as yet unnamed party.

Seems an odd way of informing the market without really saying much at all!

The offer would have to be significantly over the current share price of $5.27 for my good self to accept any offer as it is part of my long-term portfolio and has been for 5 years and I own a very large parcel. In fact I went on a buying spree this week and bought some more SKC, as well as a significant parcel of The Warehouse(WHS) for the large dividend payout and imputation credit feast.

If you are a short-term investor you should probably run for the hills today but if you have bought this company as an investment then I wouldn't sell for less than 8 bucks, not that the offer is going to be this high.

There were rumours of Tattersalls and Tabcorp being the suitors but Tabcorp has scotched their inclusion. Does such a quick denial have any deeper meaning?

Thought Id just put it out there.

NZX market Wrap

A huge rise by takeover target Sky City(SKC) and a solid Fletcher Building(FBU) lifted the benchmark index today, outweighing a 3 per cent slide in top stock Telecom(TEL)

Sky City said it has received an indicative and confidential approach from a party interested in acquiring all its shares.

The news boosted the casino company's stock to a record high of $5.56, before it closed up 22 per cent, or 95c, at $5.28 on turnover totalling $96.8m.

Fletcher Building announced today that it had raised over $300 million in debt to cover bridging loans used to fund the recent Formica Corp purchase. Fletcher Building rose 3 per cent, or 40c, to $12.80

The NZSX-50 index ended the week up 0.6 per cent, or 24.28 points, at 4231.16 on turnover totalling $231.5 million.

Top stock Telecom(TEL) was down 13c, or nearly 3 per cent, at $4.29. Contact Energy(CEN) fell a cent to $9.33, Fisher & Paykel Healthcare (FPH) lost 4c to $3.45, F&P Appliances fell a cent to $3.57 (FPA) and Auckland Airport(AIA) lost a cent to $3.24 after rising strongly this week on a Candian pension bid for the company.

Sky TV (SKT)was up 4c at $5.52, Air New Zealand (AIA)rose 3c to $2.22, The Warehouse(WHS) gained 3c to $6.08, Infratil(IFT) was down 2c at $2.98, and Hellaby(HBY) was up 10c at $2.90.

Freightways(FRE) fell 2c to $3.68, Sanford(SAN) rose 4c to 4$.55, and Nuplex(NPX) was up 7c at $7.02.

Guinness Peat Group(GPG) shares fell 4c to $1.89 after the lifting of its trading suspension.

GPG recently quit its $3.62 per cent stake in NZX at a market discount of $9.50. NZX shares closed down 10c today at $9.50.

Disclosure: I own AIA, PPL, SKC, MFT shares

C Share Investor 2007

Sky City Casino Receives Takeover Bid

Thursday, September 20, 2007

The Warehouse: The fight for control begins soon

The stoush between Foodstuffs and Woolworths Australia [WOW.ASX] over control for The Warehouse Group [WHS.NZ] is not over yet.

The Commerce Commission case to decide whether either suitor can make a bid comes up in October and both will be primed and ready to make their prospective arguments.

The recent failure of The Warehouse "extra" format, where 3 stores have been expanded to include groceries, has given more impetus for any takeover to be explored.

The main roadblock in the way of Commerce Commission approval for a takeover bid was the possibility of The Warehouse becoming a third player in the New Zealand grocery market and now that those plans have been put on hold by Warehouse management this roadblock has been somewhat lessened.

Management are going to see if they can tweak performance and costs in some way as to justify further expansion of their grocery offering but in my opinion it is only going to work once they have economy of scale and they can show customers that what they offer is the same or better than at Woolworths or Foodstuffs grocery outlets.

So it isn't crystal clear yet whether the grocery offering that The Warehouse has or will have will be a stumbling block for the Commerce Commisssion to give the green light to a takeover offer because not even The Warehouse knows exactly what the future will look like for the "extra" format stores.

The dark horse here of course is Stephen Tindall, the majority owner of the company, nobody knows what he is going to do. He made a bid last year at NZ$5.85 in conjunction with a private equity partner, for 100% of the company.

Since then we haven't heard anything from him and one could be forgiven for thinking that he has lost interest in a deal.

In my opinion though you cant discount the fact that The Warehouse is Tindall's baby and the company has been his life for almost 30 years.

A company that Tindall has nurtured and changed progressively over those decades, the move by him last year seemed to be him ready to shift The Warehouse in a new and exciting direction and I don't think he is going to give up control easily.

Retailing is in his blood.

WHS shares closed even today at $6.05 and are due a large dividend of 40.5c fully imputed due to the disposal of real estate and return of funds to shareholders.

Disclosure: I own WHS shares

The Warehouse Group @ Share Investor

Long vs Short: The Warehouse Group
Warehouse bidders ready to lay money down
The Warehouse set to cut lose "extra" impediment
The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

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The Warehouse Financial Data

Share Investor

Wednesday, September 26, 2007

Sky City Entertainment Group Ltd: Premium for Control

Friday, September 21, 2007

Share Investor's Friday Free for all: Edition 4

Sky City Casino Receives Takeover Bid

Thursday, September 20, 2007

The Warehouse: The fight for control begins soon

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