Takeover rumours lift Sky City

Sky City takeover rumours are in play again. Picture / Herald on Sunday

Shares in Sky City Entertainment surged yesterday on renewed speculation it could be bought by Australian gaming giant Tabcorp.

Wire reports had Tabcorp chief executive Matthew Slatter telling a Merrill Lynch investment conference in the United States he would not rule out the company bidding for Sky City.

The share price of New Zealand's largest casino operator rose 30c, or 6 per cent, to close at $5.25 after Slatter's comments.

AAP reported Slatter wanted Tabcorp to focus on developing its business in Australia and was looking at international opportunities selectively.

But asked if Tabcorp might be interested in acquiring Sky City, Slatter said: "I never rule anything in or out in terms of potential acquisitions.

"What I will say is that in Australia we have a lot of work to do over the next two years, focusing on really optimising our business."

His comments follow suggestions by analysts in August that Tabcorp, Australia's biggest gaming company with casinos in Sydney, Brisbane, Gold Coast and Townsville, could be interested in buying Sky City after its A$1.9 billion offer for rival Unitab was blocked by Australia's competition watchdog.

Goldman Sachs JBWere analyst Marcus Curley said speculation Sky City was a takeover target had been around for years but consolidation of the Australian gaming sector meant Tabcorp had few domestic opportunities for acquisition.

"They [Tabcorp] are actively looking for acquisition opportunities and Sky City is one which they continue to assess," said Curley.

However, "relatively big hurdles" to any deal existed.

"Sky City still has an awful amount of debt," said Curley. "Tabcorp still has an earnings multiple substantially lower than Sky City and there still remains some uncertainty over the approach the regulators would take - if an Australian bought Sky City - from a gaming perspective."

Slatter's comments had "created a flurry of interest" on the sharemarket, pushing up Sky City's share price already depressed as the company last week set the price for its dividend reinvestment scheme.

The "artificially low" share price and "reigniting the corporate activity flame" resulted in the bounce.