BIR Takeover article

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    Burswood in line for Packer
    By Richard Gluyas
    April 29, 2002
    AS the Western Australian Government mulls over removing the 10 per cent Burswood ownership cap, and the casino suffers another earnings blip due to its volatile international business, so do the takeover planets gradually move into alignment for Publishing & Broadcasting.

    Kerry Packer's PBL, owner of Melbourne's Crown Casino, holds just under 5 per cent of Burswood Casino, which telegraphed its second profit warning for the year on Friday.

    In January, the September 11 terrorist attacks and Ansett's collapse caused a 20 per cent downward earnings revision for the December half.

    The market learned on Friday, though, that Burswood boss John Schaap's run of bad luck had extended well into the second half with a sharply lower than expected 0.74 per cent win rate for the casino's international commission business in the March quarter.

    All things being equal, the win rate should be 1.35 per cent.

    The profit impact will be substantial, with Burswood essentially operating at break-even for the first quarter of the new calendar year.

    If ever there were an unfortunate time for the house to experience a good mugging, it would be precisely now when PBL looms large on the Burswood register and the state Government is inclined towards lifting long-standing ownership restrictions.

    Schaap is nothing if not a realist. He would know that the March earnings gap could play into the hands of a predator.

    There is no shortage of them, after all. To PBL you could add Jupiters, Tabcorp, the NSW TAB and New Zealand's Sky City, owner of the Adelaide casino.

    The Burswood boss, having experienced a similar mugging in the first three months of 2001, said somewhat ruefully on Friday that it would have been nice to start the year without the same first quarter.

    But as Crown founder Lloyd Williams would attest, the junket business can be extremely volatile. Over time, the win rate will average 1.35 per cent but it can be an eventful ride before the trend line adjusts to horizontal.

    Meanwhile, the Burswood ownership cap is just one element of a package of gambling measures under consideration by state Cabinet.

    Despite its expiry, Burswood's exclusive licence is not considered to be under threat, with the Government having made clear its opposition to the proliferation of gambling.

    But the tax rates which apply to the casino's junket business will come under heavy scrutiny, given that Burswood is the main lure for international visitors to WA.

    Currently Burswood pays a flat 15 per cent tax on international as well as domestic revenues compared with 10 per cent for competitors such as Crown.

    A spokeswoman for Racing and Gaming Minister Nick Griffiths said negotiations over the changes had been underway with Burswood's management since last July.

    It was hoped a recommendation could be prepared for Cabinet "soon".

    Burswood shares suffered a predictable bout of selling on Friday, shedding 5c to 90c.

    After a first-half profit of $11.7 million, the company is now expected to generate a full-year surplus of $23 million.

    This is well short of potential earnings of $40 million, assuming an average performance from the international operations and a reasonable payback from the company's $96 million refurbishment and capital investment program.

    The problem is the earnings gap in the meantime, which has caused some analysts to trim their final dividend forecast from 3.5c to 2.5c.

    Burswood is still valued at $1.20 a share on an asset basis, or as high as $1.50 or more with a takeover premium.

    But Schaap has the job ahead of him to protect his independence.

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