Casinos Austria to have a new owner and possibly Codere too By Andrew Tottenham, Managing Director, Tottenham & Co January 10, 2018 at 10:27 pm The European gambling industry is seeing several sizable developments with ownership changes in recent months. Firstly, it looks as if the Czech-based Sazka Group will become the largest shareholder of Casinos Austria AG (CASAG), which owns the Austrian Lotteries Group as well as Casinos Austria’s domestic and overseas casinos. A non-Austrian owner of CASAG was unthinkable a few years ago. Sazka Group, having just received regulatory permission, now has the ability to increase its shareholding in the parent company from 11.3% to 34% by exercising a buy option. With that accomplished, it is likely they will seek to gain majority control of CASAG by buying out other large shareholders. ÖBIB (an Austrian state-owned holding company) owns just over 33%, and Novomatic owns 17.2%. Sazka Group is controlled by two Czech businessmen, Karel Komarek and Jiri Smejc, who have been after CASAG for some years. Their initial attempt to acquire the company was held up because Novomatic tried to acquire the company at the same time. In the rough and tumble of the acquisition contest, Sazka cried foul, saying that if Novomatic were to be successful, they would have a monopoly, and made a complaint against Novomatic in the Austrian Cartel Courts. With time, calmer heads prevailed and Sazka and Novomatic came to an agreement to jointly own and manage CASAG, but the Cartel Court’s investigations continued. Ultimately, at the end of 2016, the Court determined that Novomatic would benefit from a monopoly position, despite concessions the company had made, and blocked Novomatic from owning more than 25% of the company, a decision that was upheld by the Austrian Supreme Court. But it was still not plain sailing for Sazka Group. They needed the approval from the Austrian Ministry of Finance that they were a “fit and proper” company to own an Austrian gambling business. They also needed the approval of the Queensland (Australia) Government, because CASAG, through its international subsidiary, owns a controlling interest in The Reef Casino in Cairns, Australia. The disclosure requirements of the Queensland gambling authorities are quite onerous. Because of Mr. Komarek’s and Mr. Smejc’s wide-ranging business ownerships, that meant that the investigation would take many months to complete. This is a case of “the tail wagging the dog”, since the size of the casino in Cairns is miniscule in comparison to the rest of CASAG, but nevertheless, rules are rules, and the businessmen did not give up. Finally, Sazka Group has been approved by both the Austrian Ministry of Finance and the Queensland Government, so all they need to do is to finalise the acquisition of a controlling interest. The second major development involves Cirsa, a Spanish gambling conglomerate with interests in Spain and South America. Cirsa has put itself up for sale; its owner, Manuel Lao, has started a process to sell a stake in the company, including possibly the entire company. The company has revenues of around €1.9 billion and annual EBITDA of approximately €400 million. This move appears to have had a knock-on effect of promoting some changes at another Spanish family-owned gambling business, Codere. Codere too operates gambling machines and bingo halls in Spain and South America but, unlike Cirsa, does not have a gaming machine manufacturing and sales arm. In 2016, Codere’s annual revenues were €1.5 billion and EBITDA was €260 million. Codere has struggled with a highly leveraged balance sheet; its revenues suffered from the fallout of the 2008 financial crisis as well as highly volatile exchange rates. Management has done a great deal to improve operating margins, and EBITDA has increased from €200 million to €260 in the last two years, but even this, along with a restructuring, appears not to be enough to keep the current management or the equity structure in place. The private equity shareholders of Codere are likely to see the sale of Cirsa as an opportunity to exit the company, because buyers of Cirsa may want a consolidation play, acquiring Codere at the same time. For Codere, there has been some press speculation about the change of CEO and the departure of the controlling Sampedro family, with most pundits expressing the view that the new CEO, who has a great deal of South American experience, will lead the company to greater things. I think it more likely that the private equity backers of the company will see that significant growth will require a great deal of capital for new digital channels, ground-up developments, and acquisitions. Such growth would likely be a long-term play and perhaps it would be better to get out when there is strong interest in the sector. Time will tell who is right.