Woolworths and Tabcorp fight for pub group

Grocery giant Woolworths has reportedly entered the battle for control of struggling hotel company National Leisure & Gaming, which owns more than 35 pubs in New South Wales and Queensland.

Gaming giant Tabcorp has been running its eye over the NLG, which is struggling under the weight of $180 million worth of debt, for a number of months, as it tries to offset the dip in revenue it will experience in 2012 when its Victorian gaming machine licence expires.

NLG, which owns 30 pubs in NSW and six hotels in Queensland, also operates more than 900 poker machines across the two states.

The company’s shares have slumped from around 50c to just 2.5c in the last three years due to NLG’s high debt level, high rents and the downturn’s impact on the leisure and gaming sector.

However, the company is forecasting revenue of $197 million for 2009-10, a slight improvement on last year’s revenue of $192 million.

At the company’s annual general meeting on November 30, chief executive Andrew Jolliffe confirmed that the company had been approached by third parties, but said “the approaches which have been received have involved indicative valuations for NLG equity at levels below the prevailing share price”.

Jolliffe was not available for comment prior to publication.

Woolworths’ interest in the group, reported in the Australian Financial Review, would provide the supermarket giant with a chance to enlarge its own pub venture. The company operates 280 hotels in a joint venture with Melbourne pub baron Bruce Mathieson.

According to the report Woolworths in the process of conducting due diligence and is particularly interested in strengthening its position in NSW.

While NLG has a market capitalisation of just $13 million, any buyer would have to take on $183 million in debt provided by National Australia Bank’s BNZA arm.

NLG has been trying to work with the bank in an effort to reduce or restructure its debt load.