Key Points
- SkyCity is now looking for proposals for the whole shebang through a process that’s been carefully thought out, courtesy of UBS and Chapman Tripp.
- Two previous approaches gave a rough idea of what buyers are thinking: NZ772 million and NZ827 million, the board rejected both.
- They’ve sold off some assets for around NZ$296 million and are flogging off a small online casino, what you’d expect to pay for the whole company has suddenly got a bit more interesting.
SkyCity Opens Up, But Still Has No Idea What It’s Doing
You don’t often see a board reject a takeover and then say, hey, come back with a new offer, but that’s exactly what SkyCity has done. At the annual meeting, chair Julian Cook said that the board is looking for proposals from interested parties through a structured process.
People who want to make a bid will get some access to due diligence, with the help of UBS and Chapman Tripp. A special sub-committee, set up just for reviewing the bids, will be keeping an eye on things over the coming months.
But Cook was cagey, he offered no promises, and reminded everyone that this could all just come to nothing. “The Board still thinks our strategy is a good one,” he said, but if a better offer does come in, they’ll definitely consider it. There’s no guarantee that this will even result in a sale, he warned.
No giant new offer has come strolling in since the first rejections, and no one has yet come up with a new whole-business bid. But SkyCity still says they know there’s interest in the whole company.
Two Rejected Bids And Still, Nobody Knows What SkyCity’s Asking
It all started a few months back, when two takeover approaches landed on SkyCity’s doorstep. One came from an Oaktree Capital fund, which was willing to pay NZ 0.70 a share. The other, reportedly from Iris Capital, came in at NZ 0.75 a share, or so the media said.
Those prices suggest that each approach implied an equity value of roughly NZ772 million and NZ827 million, based on 1.1 billion shares. SkyCity said no to both, calling them opportunistic and saying they didn’t value the company properly.
The bids came with all sorts of strings: the buyers wanted eight weeks to do some due diligence, and also wanted SkyCity to promise not to sell any of its assets to anyone else, or at least, not before they’d sorted out the deal. SkyCity said no to all of this, but they’re still talking to the two suitors, just in case they change their minds.
Profit Takes a Hit, Debt Still Very High, Assets Getting Sold Off
The numbers that are supposed to be reassuring for investors don’t quite add up, and the details really do matter if you’re looking to buy in. SkyCity’s FY26 investor presentation reveals a pretty stark picture. For instance, the company made a net profit of just NZ 18.2 million, down by a whopping 37.6%. Underlying profit was even worse, NZ 38.0 million, down 46.9%, but revenue did manage to climb 6.5% to a not too shabby NZ$878.9 million.
On the underlying measure, without all the one-off items getting thrown in there, revenue actually flatlined, slipping by just 0.3% to NZ 822.7 million. What’s really concerning is that net debt is sitting at a pretty scary NZ 591 million., that’s 3.1 times what they can afford to cover in covenant EBITDA. So, to no great surprise, the board decided not to pay out a dividend for the year.
Traders are saying that the first quarter was basically a carbon copy of the final quarter last year, according to SkyCity’s own reports. But the good news is that the cost-cutting efforts are going ahead of schedule, they’ve managed to shave off a quarter of the total savings already. Consumer conditions in New Zealand and Australia are still pretty subdued, Cook said.
The plan to tackle that debt is to sell off some of the company’s assets, and so far they’re way ahead of plan. They’d initially thought they’d be making around NZ 200 million, but now they’re hoping to bring in a cool NZ 275 million to NZ 300 million by December. One of the buildings they sold for NZ 74.5 million settled back in September, and another one, The Grand Hotel, also sold for NZ$221 million and should settle in December, all being well.
These two sales alone are going to add up to around NZ$295.5 million, which is well within their target range. But what they want to do with that cash is pay off debt, and get their net debt down to below 2.0 times EBITDA once The Grand Hotel settles. S&P will also be keeping a close eye on the situation, and reassessing their negative outlook on the BBB credit rating at that point.
Now, you might be tempted to compare the sale prices with the initial bids, but actually, that’s not a very fair comparison, these two things are measuring different things. What you’re really swapping out is an asset for less debt. That’s a tough pill to swallow, but at least, in theory, shareholders aren’t losing out on all that cash, they’re just getting it paid off in a different way. What changes is the way that business looks on paper to any potential new investors.
The Online Casino Case Looks Small
SkyCity also got a chance to bid for two online casino licenses at NZ$15 million each. Chief Executive Officer Jason Walbridge noted that the auction cost was in line with the company’s modelling scenarios. “We are confident we can achieve the appropriate return on the capital invested.”
Moreover, Walbridge highlighted 30 years of experience operating onshore casinos and newly won the ability to advertise online. Nevertheless, the restrictions exist, including bans on sponsorships and personal endorsements and any advertising during live broadcasts.
However, analysts are sceptical about it, according to the online casino modelling of Forsyth Barr. According to this brokerage, the net present value of the project is somewhere from -6% to +11% of the current market share price. Moreover, it expects that online gaming will contribute around 5% of the group’s pre-overhead EBITDA once launched.
In eight years, the project will be nearly balanced, and the main advantage will be protection against customer migration to the internet. However, Forsyth Barr notes that its assumptions are most likely to be more conservative than those in SkyCity’s business case.
Additionally, the online division posted losses of NZ 6.4 million at the underlying EBITDA level in FY26, up from NZ 1.8 million in the previous year. Moreover, SkyCity refused to give official forecasts due to the uncertain date of launch online and economy in both countries.
What Next?
A date hasn’t been set for proposal submission, and the process “will take some time to progress,” Cook stated. This is not a sale but a solicitation for proposals, and the board is free to say no once more.
Adelaide operates on a separate track, and the whole group bidders will also need to consider this fact. On 30 September SkyCity stated that UBS would begin the formal sales process soon after queries from reputable interested parties. According to Cook on 21 October, this decision has been taken by the board.
Adelaide’s underlying EBITDA is down 31.5% to A 19.5 million, while its carrying value has been reduced by A43 million. According to Cook, it is expected that the board would return to paying dividends in the FY28 financial year.
Expert Analysis: A Case of Strategic Silence?
We interpret this process as a price test, which is conducted quietly. SkyCity claims that the current stock price as well as the current bids do not represent its value properly, yet there is no benchmark for the shareholders.
In our view, it is hard to reconcile this statement with a 37.6% drop in the reported earnings and dividends not anticipated till FY28. On the other hand, it is legitimate to suggest that disclosing the price would set a ceiling for all bidders.
The main argument of the board is its balance sheet. It might get significantly better once the hotel is sold off. Reducing net debt from 3.1x EBITDA to under 2.0x could alter the perspective of the buyers.
Online licences, we believe, will hardly be enough to change the picture. The neutral value range suggested by Forsyth Barr’s online casino modelling and increasing online losses suggest this.
Our opinion, not a forecast, is that a bid at around NZ$0.75 with similar conditions will fail. The board has not disclosed any price; only a clearly superior bid with less demanding conditions could tell its intentions.
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