Property trust Reef Casino Trust (ASX: RCT) has seen its shares sink 35% today, after a proposed takeover of the company fell through.
Aquis Group, which is controlled by billionaire Tony Fung, says it won't have received all the regulatory approvals required by the time the takeover offer expires on November 28. The company also says that it can't extend the offer out any further.
The Queensland Office of Liquor and Gaming Regulation have advised Aquis that it is logistically impossible for the regulator to grant approvals before the November 28 deadline, and was unable to give the company any advice of a date by which they can be granted.
As a result, Aquis has put its multi-billion dollar casino resort development in Cairns under review. The new casino was planned to include 7,500 hotel rooms, a golf course, to be built a few kilometres north of Cairns.
Aquis lodged a $214 million bid for Reef Casino Trust in November 2013, and received the backing of the company's two biggest shareholders, Accor SA and Casinos Austria AG. The two companies were also the operators of Reef's Cairns casino.
What now for Reef?
At the current price of $2.73, Reef Casino is offering a 7% unfranked dividend yield, which may be enticing to some investors. The price also looks attractive on a P/E basis, coming in at 7.2x last year's earnings.
The big question investors will be asking though is, "Will Aquis come back for a second bite in 2015, to pick up shares it doesn't already hold?"
That appears likely, given Aquis already owns 82.5% of the shares in Reef Casino. With the Queensland government keen to attract more tourists, particularly from Asia, to the state, the probability of the new billion-dollar casino resort going ahead is high.
Shareholders might also then ask, "How much will Aquis offer the second-time round?" If Aquis does come back with a second offer, it would make sense to offer a premium to the current share price, although it could be lower than the first offer of $3.40 per share, and potentially not much higher than today's share price.
That puts investors in a bit of dilemma.
There's also the risk that Aquis could offload its entire holding in Reef and walk away. But who would buy it is a thorny question. Casino groups Echo Entertainment Group Ltd (ASX: EGP) and Crown Resorts Ltd (ASX: CWN) are unlikely to want it, given their focus on large Australian capital cities.
But if Aquis does manage to offload their stake and still goes on to develop the new casino, that could severely dent Reef Casino's revenues.
It appears Reef's 7% dividend yield and cheap price may not be enough to entice investors to take on those risks.
