Thursday, November 27, 2014

What price a second bid for Reef Casino?

There is today an Open Letter to the Cairns Community from Tony Fung. I expect media response will be typically sycophantic but there is nothing here which placates my concerns related to matters on the Reef Casino (RCT) takeover bid.
While we have been able to develop an alternative to full ownership of the Reef Hotel and Casino the failure of the offer will nevertheless require a comprehensive review of our strategy for AQUIS and may require some difficult decisions about the project.
The other factor which comes into play for the events around the RCT bid failure and the Canberra gambit is the role and strategy of Casinos Austria (CA). When the initial transaction was announced I thought it was pretty clear that the Canberra Casino would have been thrown in as CA wouldn't want to be left with that dog alone in Australia so insisted it go as part of any Reef transaction. Now Aquis proposes to acquire the Canberra property at a further reduced price from the initial arrangement while I suspect deliberately gaming for the Reef offer to lapse.

CA have taken $6 million for Canberra down from $8.8 million in the previous agreement. The independent experts report had some difficulty with a valuation of Canberra given its almost unique situation of a loss making casino. I think that valuation on an already written down asset basis may even be below the initial licence fee with scope for recovery and a floor under the value?

So Casinos Austria definitely wanted out of that problem but still leaves them with a 47% stake in Reef Casino which is far bigger by multiples than Canberra. Aquis have also said they may reconsider a bid again next year for RCT after a strategic review. There are some rules around this. Section 621(3) says:  
The consideration offered for securities in the bid class under a takeover bid must equal or exceed the maximum consideration that the bidder or an associate provided, or agreed to provide, for a security in the bid class under any purchase or agreement during the 4 months before the date of the bid.
So Aquis can't bid again below the expired offer price of $4.354 until after March 28th 2015. The independent experts report in the target statement assessed the fair value of Reef at between $3.23 to $3.99. That leaves plenty of scope for another bid well below the previous offer. The upcoming 2H2014 trading update from Reef will be of interest.

Meanwhile the thinking and strategy of Casinos Austria may be of as much interest as the ongoing oriental opacity around Aquis. There is almost no potential for any subsequent successful bid for Reef Casino without support from Casinos Austria.

Update: "I thought it was curious an investor would want to invest $8 billion in Cairns"

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