Sky cinema buyer has eye on quality

Photo / Dean Purcell

The Australian entertainment and hospitality company poised to free SkyCity from its unfortunate foray into cinema ownership is signalling moves to develop more premium theatres.

Amalgamated Holdings Ltd (AHL) hopes to sign a deal in February to buy SkyCity's cinema businesses in New Zealand, including its joint venture interests in the Rialto group and Fiji, for $59 million.

SkyCity says the sale is part of the move to concentrate on its core casino business.

The sale excludes SkyCity's 50 per cent shareholding in ticketing software company Vista Entertainment Solutions, cash and land and buildings.

SkyCity says that together with sale proceeds, that represents a realisable value 5 to 10 per cent above the book value of $61 million.

The company has been struggling to offload the business for two years, although in the meantime it has revamped the 100-screen chain and seen some revenue improvement. SkyCity Cinemas has about 35 per cent of the New Zealand market.

SkyCity bought into cinemas in 2001 as part of a diversification strategy. It paid around $100 million to buy into Village cinemas, spending a further $50 million five years later to give it total control of the business.

In the 2008 financial year it wrote down its cinema chain by $60 million.

AHL's group managing director, David Sergeant, said his company had wanted to expand its cinema business into New Zealand for some time after having a presence here with its Rydges hotel chain for the past two decades.

"It's a quality circuit and in the last 12 to 18 months SkyCity has done a pretty good job in improving that business so the timing was good. For us it represented a great opportunity."

With the purchase of SkyCity cinemas, AHL would have about 1300 screens around the world.

In Australia its chains include Greater Union and the premium Events Cinema business, which was the company's focus.

This emphasis could be transferred across the Tasman.

Sergeant said he was "comfortable" with SkyCity cinema earnings.

Goldman Sachs JBWere's head of research, Marcus Curley said SkyCity was getting a reasonable price.

The cinemas suffered an operating loss of $1 million in the past year.

"It's clearly the end of a poor chapter from a decision by the previous management."

SkyCity shares closed up 3c at $3.34 yesterday.

BIG SCREEN
* AHL operates 1300 cinema screens in Australia, Germany and the Middle East.
* It has 30 hotels and resorts throughout Australasia including Rydges in NZ.