GOLDMAN SACHS CALLED TO BROKER REDCAPE SALE

In Finance by Clyde Mooney

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As the money-shuffling strategies of its hedge fund owners continues, another potential sales process has emerged for Australia’s high-profile pub group.

New York-based Värde Partners and York Capital Management hold the deeds to the gaming-centric Redcape Hotel Group, but will at some point cash in their interests to realise their investment.

They acquired the troubled pub operation from Goldman Sachs, which swooped on Redcape’s primary debt in the post-GFC fallout in 2011, before subsequently realising its own investment through an exit that saw Värde and York take possession.

Similarly, the current owners are constantly looking at ‘crystallising’ value, and sources tell PubTIC they are certainly not “desperate sellers” but do recognise the opportunity in the current yield-hungry investor environment.

The Redcape property portfolio, housing 26 strong pubs plus lucrative associated liquor retailing, has reportedly been independently valued at over $700 million. The business has also invested considerably in systems and capability, bolstering its strong revenue track record and consistency.

There have been recent courtships for the Group as a whole from parties positioned to take on the entire operation, including funds manager Moelis with operator Nelson Meers, and significantly from a rumoured collaboration between investor Charter Hall and the Woolworths-backed ALH.

Both of these negotiations have failed to produce a winning agreement, with sources suggesting the trouble being the moving target of a valuation on Redcape’s top-shelf gaming pubs.

The IPO option cited last year also appears to have fallen by the wayside, as stock market volatility threatens the surety of the earmarked return.

Now – coming full circle – New York finance giant Goldman Sachs has re-entered the fray, appointed to sell the gleaming pub asset. Prospectus flyers have been issued to key, confidential, potential buyers.

Initial bids are expected in two weeks, and given the continued shortage of profitable investment opportunities the figures could well go north of the owners’ valuation baseline.

While Woolworths struggle with the moral decision of whether or not to stay associated with their cash-cow pub and liquor retailing arms, Redcape’s proven gaming formula and top-performing venues are likely be prove attractive to ambitious investment capital.

Despite the parent’s volatility, ALH’s landlords have continued to see the upside of the arrangement. ASX-listed entities ALE and HPI (Hotel Property Investments) have each seen considerable share price growth already in 2016 of 15.0 per cent and 18.6 per cent respectively.

But echoes of the Gillard minority government of 2012/13 have reverberated with the regained influence of parliamentarians Andrew Wilkie, independent federal member in the Tasmanian seat of Denison, and Nick Xenophon, independent senator in South Australia.

This has put gambling regulatory reform back on the table, although it remains to be seen if one member and one senator in different States can affect much influence over a populist government on the PR back foot.

Barring the unlikely event of Federal Government interfering with State taxation, the billions earned by the States in poker machine taxes is safe, and the bottom-line appeal of Redcape remains secure.