Australian firm buys SkyCity cinemas

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SkyCity Entertainment Group will have a stronger balance sheet, after the $59 million sale of its troubled cinema business to Australian-listed entertainment group Amalgamated Holdings Ltd (AHL).

After three years of fruitless attempts to sell the business, the nation's largest cinema business said yesterday that AHL would buy its 14 cinema complexes in New Zealand, including Wellington's Embassy Theatre, plus joint venture interests in the Rialto Group and interests in Fiji.

The sale is subject to due diligence to be finished by December 15.

AHL will pay a 5-10 per cent premium for the business, analysts say. SkyCity slashed the value of its cinemas from $110m to about $50m in early 2008 in anticipation of a sale.

The market reacted positively to the news with SkyCity's shares closing up 3c to $3.34 yesterday.

Tower Investments head of domestic equities Paul Robertshawe said SkyCity was strengthened by the disposal of the non-core business, which had contributed 3 per cent of its revenue, and had been value- destructive over time. The sale could prompt SkyCity to increase capital spending, lift dividend payments or buy another business, he said.

Tyndall Investment Management head of domestic equities Rickey Ward said the sale of the cinemas, which had been a headache for SkyCity, had further strengthened analysts' view that SkyCity is predominantly a casino business rather than an entertainment firm.

SkyCity indicated in 2007 that it had put the cinema business on the block.

In 2008, SkyCity had two unsolicited offers from private equity firms TPG Newbridge and Apollo, which never resulted in a formal offer and was disappointed when a negotiation with a potential buyer, understood to be US-owned Reading Cinemas, didn't proceed to a signed arrangement.

SkyCity chief executive Nigel Morrison said "I am delighted that Amalgamated, a high calibre . . . cinema operator has chosen to acquire our cinema business and wish them every success in continuing to grow and enhance this important New Zealand business."

AHL's purchase of SkyCity's cinemas will deepen its place in New Zealand alongside its ownership of the Rydges Hotels & Resorts group.

AHL managing director David Seargeant said it had considered making an offer for the cinemas two years ago, and yesterday's deal with SkyCity was struck quickly. Mr Seargeant was not fazed by the cinema's past write-downs and financial struggles.

"It was just overvalued, and now that's been corrected, it's been run well."

The company, which is a dominant player in the cinema business in Australia with stakes in Germany and Middle East cinemas, was keen to develop its digital offers including alternative content in New Zealand, Mr Seargeant said.

- © Fairfax NZ News