Star City: The Back Story
Leighton Properties 2 Oct 2012
We saw casino development as a low equity/high skill opportunity for the Company, albeit that the bid process is a major upfront investment. We developed an excellent joint venture relationship with Sheraton and together tendered for the Brisbane and Cairns casinos – both unsuccessful. But we learnt a lot. This is the 'back story' according to Vyril Vella.
Partners in...partners out
After six months and several rounds of bidding we were down to the last two for the Melbourne tender (with an excellent design and financial proposal that we thought would be a winner) when the Sydney bid needed to be put together. Under the Authority's rules, Sheraton were only able to operate one casino, so they chose to focus on the bid for Melbourne.
This left us without a partner for the Sydney bid. We talked to Consolidated Press, who were the obvious choice, but they wanted to run themselves. We eventually found a partner through Bob Hawke, our ex Prime Minister. Bob was the 'gate' for a disparate group of Chinese investors from Hong Kong. We effectively joined their team, and after making it through four 'rounds' in the bid process, we needed to find an operator to join the consortium. We came across Showboat, a boutique casino operator in Atlantic City and Vegas, and invited them to join the team.
At the same time, we were asked to provide some extraordinarily onerous corporate and personal financial details to the Casino Authority. Australia has the strictest gaming regulations in the world, and it transpired that our Asian investors were uncomfortable with providing the level of detail required, and chose to pull out of the bid. Unfortunately, they owned the bid vehicle! We were required to navigate some very difficult negotiations in order to buy the bid vehicle, of which we were the driver… My memories are of the aggressive, cigar-smoking Hong Kong lawyers who continued to move the goal posts every time we were close to a deal. We learnt a lot during that process.
Another concern was the confidentiality of our bid. The selection criteria for the bid were based on a combination of the design, staffing and operator experience, probity and financial offer for the license, with the offer being the key factor. Whilst we ‘swept’ our offices regularly for listening devices, you can imagine our surprise to receive a call from an analyst asking us to confirm if our bid was going to be $330M – a figure too close to the number we were working on to be a coincidence! This impressed upon us just how powerful, and tenuous, our position was, and we further tightened security.
On the actual morning of submitting our offer we made a major change to our bid. We decided to reduce our construction and development price and Showboat would match that by reducing their management fee; our overall offer increased from $330M to $376M. Because all of the bid documents were completed, I had to manually alter the price in each copy, which ensured the offer was secure.
That amazing call
We had been told that we would be receiving a call from the Chairman of the Casino Authority with the news of who would be the preferred tenderer. I remember everyone from Leighton Holdings, Leighton Contractors and Properties hovering around my office that day. We received the call at 11.00am on 6 May 1994. Thereafter, it was bedlam! It was a full-on party, with people crashing in their offices that night. It was one big celebration for the whole company, and certainly my fondest memory from my 20 odd years with the Group.
For more information
Phone+61 2 9925 6666
Email Leighton Properties