Skycity Confirms MGM Grand Darwin Acquisition
11 February 2004
SKYCITY COMPLETES DUE DILIGENCE AT MGM GRAND DARWIN
AND CONFIRMS ACQUISITION PLANS CONTINUE
New-Zealand based gaming and entertainment company SKYCITY Entertainment Group (SKC) today confirmed that, further to its recent announcement regarding its interest in the MGM Grand Darwin in Australia's Northern Territory, it has now completed due diligence and this morning signed a sale and purchase agreement with American owners MGM MIRAGE Inc.
In statements issued to the Australian and New Zealand stock exchanges SKYCITY confirmed it will proceed with acquisition plans, which remain conditional upon Northern Territory Government consents and Foreign Investment Review Board approval. SKYCITY Managing Director Evan Davies said the company was enthusiastic about the opportunity that a second Australian acquisition presents for the SKYCITY business, which was this week acknowledged as one of New Zealand's leading wealth creating enterprises in the Stern Stewart Economic Value Added (EVA) survey.
A purchase price of A$195m (NZ$220m) has been agreed. Settlement will take place following provision of necessary regulatory consents, a process expected to take several months.
Mr Davies said that SKYCITY has, for some time, expressed interest in expanding its Australian operations and the Darwin casino represents an excellent opportunity for SKYCITY to consolidate its position in the Australian gaming sector.
"MGM Grand Darwin already operates gaming, hotel and food and beverage operations. That mix obviously sits well with the SKYCITY Entertainment Group business model, which encompasses the provision of multi-faceted entertainment experiences," said Mr Davies.
"The price is comfortably within our range, the operations meet our criteria and also present opportunities for future business development," he said. "The capability we have shown in translating our New Zealand-based experience into an Australian context, through our South Australian investment, assures us that a second operation within Australia will be positive for the company. We are also confident that the entertainment experience that is synonymous with existing SKYCITY properties will be one that is embraced by both existing and new customers to the Darwin hotel and casino," he said.
Mr Davies confirmed that the transaction would be funded by additional senior debt, provided by existing lenders, and that no significant post-acquisition capital expenditure was necessary beyond branding changes. The property is likely to be renamed SKYCITY Darwin.
"The recent expenditure of $18 million on property improvements and the fact that 90% of the property's gaming machines are less than three and a half years old means that major capital outlays need not be immediately on the agenda, " said Mr Davies. "It is already an efficiently operated business that is performing well and, should settlement be finalised as we anticipate it will be, we would envisage spending some time assessing what improvements might be made in the short term.
"We would expect to generate some synergies between this business and our existing operations in Australia and New Zealand; to enhance existing product offerings and to introduce our proven marketing approach, but suffice to say it would be "business as usual' for the property for the foreseeable future," he said.
The MGM Grand Darwin is the only licensed casino in Darwin and the largest in the Northern Territory. Gaming operations include three gaming rooms, 26 tables, 450 gaming machines and 50 NT Keno venues. Gaming represents approximately 78% of the property's total revenue stream.
The 107-room hotel operation within the beachfront complex contributes 6% of overall revenues. Food and beverage operations comprise 16% of total revenues and include four restaurants and five bars.
Located 3km from the city centre the MGM Grand Darwin is a mid-sized gaming operation, approximately 25% larger than SKYCITY's most recently opened casino, SKYCITY Hamilton (New Zealand), in terms of gaming machines and table numbers.
"This is a prominent facility in a region with a favourable economic outlook. The casino complex is already a major entertainment venue and has the capacity for further development, which is exciting for a business like ours" said Mr Davies, who added that the company would be likely to introduce its award-winning "Action' customer loyalty programme to Darwin customers.
Mr Davies said that SKYCITY's acquisition of a second Australian property was consistent with the company's previously stated intention of growth.
"We have been saying for some time that SKYCITY is well-positioned for expansion and Australia presents a logical opportunity, particularly from a geographical perspective. Our interest in Darwin is consistent with the company's strategic direction," he said.
"In addition to our interest in new investments we are committed to ongoing renewal of the experiences we provide through our existing businesses. Our current expansion programmes at SKYCITY Auckland and SKYCITY Adelaide are indicative of our re-investment philosophy and this strategy of growth and diversification has led to delivery of six consecutive years of profit and dividend growth to our shareholders," said Mr Davies.
Mr Davies said that MGM Grand Darwin represents a strong opportunity for SKYCITY to increase its "footprint' within the Australian gaming and leisure industry. The company, which acquired the former Adelaide Casino in 2000 (since renamed SKYCITY Adelaide), has been dual-listed on the ASX and the NZX since July 2002 and currently has a market capitalisation of A$1.7 billion (NZ$1.9 billion).
MEDIA FACT SHEET
ACQUISITION OF MGM GRAND DARWIN
- Acquisition details:
„« SKYCITY Entertainment Group Limited (SKC) to purchase MGM Grand Darwin from MGM MIRAGE Inc.
„« Purchase price of A$195 million (NZ$220).
„« To be funded by additional senior debt from existing lenders.
„« Conditional upon Northern Territory Government consent.
„« Settlement to follow regulatory consents and Foreign Investment Review Board approval.
„« To be rebranded "SKYCITY Darwin".
„« Further diversifies SKYCITY's revenue and earnings.
„« SKYCITY Entertainment Group's second Australian gaming and entertainment complex (owns and operates SKYCITY Adelaide in South Australia).
„« Represents increase in Australian based earnings from 17% to 29%.
- MGM Grand Darwin's operations include:
„« Gaming operations (representing 78% of total revenues):
- Casino licence originally awarded to Federal Hotels in 1979 (permanent Darwin premises opened in 1983)
- 3 Gaming rooms
- 2,200 square metres of gaming space
- 26 tables
- 450 gaming machines
- 50 NT Keno venues
„« Hotel operations (representing 6% of total revenues):
- 107 rooms
- Including 10 five star rooms
- The only 5-star accommodation in Darwin
„« Food and Beverage operations (representing 16% of total revenues):
- 4 restaurants
- 5 bars
- Property-related information:
„« Darwin's only casino - Northern Territory's largest.
„« Beachfront location.
„« 3km from the city centre.
„« Approximately 3000 visitors per day.
„« Larger than SKYCITY Hamilton (New Zealand) by 25% in terms of number of gaming machines and tables. Approximately the same size as Christchurch Casino (New Zealand).
„« Total NT gaming expenditure similar to Australian average.
„« Already a major entertainment venue in the region.
„« Exclusive casino operator's agreement until 2015.
- "Environmental' information:
„« Darwin population - 104,000.
„« Northern Territory - 200,000.
„« 715,000 visitors to Darwin each year.
„« 1.3% 10-year annual population growth forecast for Darwin.
„« Largest sector employers include Government and Defence; Health and Education.
„« Tourism industry is the Territory's second largest revenue generator.
„« Additional international and domestic flights to Northern Territory recently announced by Qantas - bringing projected additional 28,000 international visitors.
- SKYCITY Entertainment Group Ltd - Background Information:
„« Corporate information:
- Gaming and entertainment group based in Auckland, New Zealand.
- Listed (SKC) on the Australian and New Zealand Stock Exchanges.
- Operates gaming and entertainment complexes in Adelaide, South Australia and Auckland, Hamilton and Queenstown in New Zealand.
- Other investments: Majority shareholder (74% fully diluted) in listed New Zealand cinema exhibition business SKYCITY Leisure Ltd. Holds a 33% interest in ASX-listed, on-line wagering business Canbet Limited.
- Market capitalisation of A$1.7 billion (NZ$1.9 billion) with 20,000 shareholders.
- Since listing in 1996, SKYCITY has delivered six consecutive years of profit performance and earnings growth to shareholders.
- Recorded an FY03 annual result net surplus of NZ$107.1 million.
„« Business philosophy:
- Company vision: to "create fun and entertainment'.
- Marketing-led business that focuses on customer service as being core to its operations.
- Provides broad-based, locally relevant entertainment offerings at each of its properties.
- Committed to host responsibility and operates a dedicated Host Responsibility department. Its Group-wide training programmes and customer initiatives are widely recognised as industry leading.