Donaco International (ASX: DNA) has agreed to a proposed $55.6 million takeover by substantial shareholder On Nut Road, a special purpose vehicle managed by Hong Kong’s Argyle Street Management.

A binding scheme implementation deed signed between the two companies will offer each Donaco shareholder a consideration of $0.045 cash per Donaco share held, representing a premium of 54.10% to the 90-day volume-weighted average price of $0.029 at 14 March.

Donaco’s board of directors has unanimously recommended that shareholders vote in favour of the scheme.

Cyclical business

Donaco non-executive chair Porntat Amatavivadhana said the takeover would provide shareholders with certainty in the form of a cash payment while removing the risks associated with the cyclical nature of the entertainment business.

“While our company has performed steadily in the last few years and has emerged from the pandemic, our financial headwinds have been compounded due to limited profit margins and a lack of substantial investor confidence [and] this has made fundraising efforts for any form of growth particularly challenging,” he said.

“The dependence on a single major shareholder for financial stability becomes even more critical in light of the economic strains brought about by the pandemic.”

Further challenges

New gaming legislation in the company’s main region of operation could result in further challenges.

“Thailand’s plan to introduce casino franchises in Bangkok could significantly impact the flow of patrons to our border casinos,” Mr Amatavivadhana said.

The company also believes the recent actions to cut power along certain towns between Thailand and Cambodia that have led to intermittent power supply further complicate  operating conditions and will impact costs.

Largest asset

Donaco’s largest asset is the Star Vegas casino and hotel complex, billed as the largest, most luxurious and most successful resort in the Cambodian city of Poipet.

Established in 1999, Star Vegas has 385 hotel rooms, as well as more than 150 gaming tables and 1,000 slot machines.

The property is located on the border between Thailand and Cambodia and is the closest legal gaming destination to the greater Bangkok area.

Boutique casino

Donaco’s also owns the five-star Aristo hotel and boutique casino in northern Vietnam, located on the border with Yunnan province in south-western China.

The property – which opened in 2002 – has 400 hotel rooms, multiple gaming tables and a licence allowing up to 300 electronic gaming machines.

Donaco is a pioneer casino operator in the region and owns a 95% interest in Aristo in a joint venture with Vietnam’s government.

Licensed fund manager

On Nut Road was founded in 2002 as a licensed fund manager and currently manages more than US$2 billion of assets.

Argyle Street Management, reportedly controlled by Thai hotel billionaire Chanin Donavanik, first invested in Donaco through On Nut Road in 2019.

The company currently has a beneficial interest in approximately 12.84% of Donaco’s issued capital.