Goldman sees few Sky City benefits from Taverner

An acquisition of Australia's No.2 pub operator, Taverner Hotel Group, by New Zealand casino operator Sky City Entertainment Ltd would have limited strategic benefits and provide only a modest lift to fiscal 2006 earnings, GoldmanSachs JBWere said.

Sky City said yesterday it was considering bidding for Taverner, Australia's second-largest pubs operator after ALH which is owned by top Australian grocer Woolworths Ltd.

GoldmanSachs JBWere analyst Marcus Curley said if the move was successful it would also increase Sky's gearing, making it a less attractive consolidation partner or takeover target.

"We would question Sky City's ability to add significant value to THG (Taverner Hotel Group) given it has no direct experience in operating Australian gaming hotels plus THG's gaming machines are likely to be reasonably well run, particularly in Victoria where the gaming machines are owned by Tabcorp and Tattersall's ," Curley said in a report.

"At this stage, we believe cash flow synergies for Sky City would be around A$1 million ($1.1 million) per annum."

Bids for Taverner, which operates 32 pubs with gaming machines in the states of Victoria, South Australia, and New South Wales, are due on Friday. Banking sources say the assets could sell for as much as A$350 million.

Three other bidders reported to be in the running are Woolworths, private equity firm The Carlyle Group and a Deutsche Bank private equity fund.

Taverner, being advised by Citigroup and UBS , is 55 per cent-owned by private equity group Catalyst Investment Managers and 27 per cent-owned by private equity firm Advent Management Group, with the remainder held by management and two private shareholders.

Curley said an acquisition between A$310 million and A$350 million could add only 0.9 to 3.0 per cent to Sky City's earnings per share in fiscal 2006.

GoldmanSachs JBWere has retained its "underperform" rating on Sky City and its $4.78 share price target.

Shares in Sky City last traded at $4.78 while Woolworths shares closed at A$15.86.

- REUTERS