Sky City confirms Darwin purchase

Wednesday 11th February 2004

Skycity Entertainment Group has 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.

Sky City confirmed it will proceed with acquisition plans, which remain conditional upon Northern Territory Government consents and Foreign Investment Review Board approval. Sky City managing director Evan Davies said the company was enthusiastic about the opportunity that a second Australian acquisition presents for the 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 ($220m) has been agreed. Settlement will take place following provision of necessary regulatory consents, a process expected to take several months.

Davies said that Sky City has, for some time, expressed interest in expanding its Australian operations and the Darwin casino represents an excellent opportunity 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 Sky City Entertainment Group business model, which encompasses the provision of multi-faceted entertainment experiences," Davies says.

"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.

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 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, " Davies said. "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 Sky City's most recently opened casino, Sky City Hamilton (New Zealand), in terms of gaming machines and table numbers.

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