Sky City's Canbet gamble misfires

By Nicholas Bryant

Friday 25th August 2000

Sky City's decision last month to take a 33% shareholding worth $50 million in online wagering company Canbet has backfired and investors have dumped the stock.

The value of Canbet's shares has plunged 45% from a high of 32Ac last month to 17.5Ac on Wednesday since news broke of possible relaxing of online gaming laws in the US. Canbet is principally owned by entrepreneur Eric Watson and 70% of its business emanates from the US.

Market analysts earlier warned more liberal gaming laws would lead to a proliferation of online gaming companies in the US. They argued this would substantially reduce Canbet's business.

The deal with Canbet sees Sky City initially paying $A5 million before the end of August for 16.67 million new shares at 30Ac each. This equates to a 6.8% stake and comes with free options on a 1:1 basis at a strike price of 20Ac. The options can be exercised anytime before March 31, 2002.

Sky City will take up the remainder of its shareholding in October when the first payment is made. A second payment is due 12 months later. Sky City will be issued additional options on the same terms as the August placement, boosting its shareholding to 33%.

In announcing Sky City's annual results last week, managing director Evan Davies declined to comment on the specifics of the Canbet investment but he indicated a greater interest in online gaming ventures was a strong possibility.

Market analyst Frank Fernandez said it was unlikely Sky City would be realising its Canbet options "in a hurry" with the strike price now sitting higher than the share price.

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