Štěpán Dlouhý interview to Hospodářské noviny

Last Friday, the highest Czech investment in Austria to date was made by Karel Komárek and Jiří Šmejc. They paid an estimated more than five billion crowns to take joint control of Casinos Austria, a lottery and casino company with revenues around 100 billion crowns, which is about 10 times more than Sazka's earnings in the Czech Republic.

The two entrepreneurs have struck a deal with the Austrian gambling giant Novomatic to settle a legal dispute that has lasted nearly a year and to form a joint venture, which will own a narrow majority stake in Casinos Austria. This way, they will essentially control all casinos in Austria and, more importantly, obtain monopoly for lotteries.

"The decisive factor was a suggestion made by the Austrian minister of finance who said that instead of fighting, Novomatic and our firms should work together," describes the background of the transaction in an interview to Hospodářské noviny Štěpán Dlouhý who is responsible for the acquisition of lottery companies in Komárek's KKCG.

Casinos Austria is a third large acquisition Komárek and Šmejc have made in the lottery business. They already control the Czech Sazka and the Greek OPAP through the Sazka Group. Adding up all lottery games offered by Sazka, OPAP, and Casinos Austria makes Komárek and Šmejc the biggest lottery operators in Europe. "If you factor in the entire Austria, I think that we are now indeed the largest lottery operator," comments Dlouhý.

What were the three main reasons behind the decision to invest into Casinos Austria?

It's is simple. Lottery, lottery, and lottery again. The company faces no problems in its business; it is more the things that surround it. Problems of this kind, however, can always be resolved if the core business is sound. Casinos Austria is a company with a high potential to grow and to generate a considerable profits to shareholders.

At the press conference, you hinted that the transaction is the biggest Czech investment in Austria. Can you tell us how much money was involved?

I can't disclose how much the deal was worth, but let's say that we're talking about several hundreds of millions of euros.

You are building a lottery holding. All the transactions until now, however, have been complicated, whether it was Sazka, the Greek OPAP, and now the Austrian deal. Will you be able to consolidate your business?

You have to realize that the gaming industry is large as far as the volume of money is concerned, but relatively small with regard to the number of companies operating on the market. And there are a limited number of opportunities. It means that you have to be prepared to make investments together with other players. That's inevitable.

And the fact that this is another complicated case? We like it and find it challenging this way. If the deal were simple and if a 100% stake in Casinos Austria were up for sale, there would be a long line of potential buyers from the world over. But because the structure is so complicated and because there are so many agreements among shareholders, it's no wonder that nobody wanted to touch this, apart from Novomatic for which Casinos Austria is the domestic market. And that's where we saw an opportunity. We believed that if we get involved and work hard, we would be able to make the acquisition at an attractive price and make interesting profits in the future.

How has it happened that the structure of Casinos Austria is so complicated?

We believe that it was set up like this by the former management years ago to prevent the company from being taken over.

Doesn't it make you nervous that you'll only gain access to the company in about a year?

No. It has to be like that because of the complicated structure. Likewise, Novomatic will not gain access to Casinos Austria for at least six months, before the antitrust office delivers a decision and before a number of other legal steps are taken. We expect that the entire transaction could be completed in December.

Does it mean that your position is secure?

Yes, absolutely.

The issue of nationalism has played a role since the beginning of the negotiations because Austrians are reluctant to allow foreign investors to enter local corporations. What was the importance of this aspect during the recent talks?

I don't feel that this issue has played a role at the level of Novomatic; they are businessmen. And I can't really comment on the role nationalism might have played at the level of Austrian politicians.

How difficult was it to reestablish friendly relations with Novomatic following the disagreements and legal battles? What was the breaking point?

On both sides, it was surprisingly simpler than we had expected. We are all pragmatic professionals with similar objectives and interests. And the decisive factor was the Austrian finance minister's suggestion that Novomatic and our company should stop fighting and start working together. Because everyone would benefit, including the Austrian government. In the end, the negotiations were some of the most constructive ones I have ever experienced. Despite the scope and complexity, the terms of the transaction were negotiated in no more than three weeks.

Does your agreement with Novomatic contain provisions for the eventuality that your partnership will end?

Yes, but I can't disclose the details.

In which direction do you plan to steer the future development of Casinos Austria?

We have analyzed the company's situation and have a general idea about what to do next. But details will only be revealed once Novomatic and our company take control of the firm.

During the press conference, you suggested that your 51% stake is not final. Do you plan to buy an additional share?

The government currently owns a 33% stake through an organization that is similar to the Czech National Property Fund. In addition, there are some minor shareholders. As I said at the press conference, if they want to sell their shares, we will be happy to buy them.

Are you now the largest lottery operator in Europe?

If you factor in the entire Austria, I think that we are now indeed the largest lottery operator.

Are you planning any other acquisitions?

It's too early to think about that. It is clear, however, that we want to be there whenever something is happening in the European lottery industry. Most lotteries are state owned and the examples of Sazka and OPAP show that a private owner can improve considerably the performance of a lotto company, which in the end translates into extra revenues in government coffers. However, lottery privatization is a lengthy process in every country.

Is it possible at all to manage these companies in three European countries? How much time do you spend traveling?

In recent weeks, I've been on the move quite a bit. My associate and I were joking that this will be the first week in a long time when we won't be flying anywhere. Otherwise, we fly at least once or twice every week.

In the past, you were interested in entering the Turkish market. What is the situation there now?

Something will be happening there, but it is a big question for us whether we'll want to get involved. Since we made our last offer about a year and a half ago, the situation in the region has changed dramatically. The Islamic State is just around the corner, and the value of lira has declined considerably.

What is the relationship between Mr. Komárek and Mr. Šmejc in the Sazka Group?

They have a very good working relationship and communicate directly with one another, which is the reason why they bought into the Sazka Group together. As regards the Austrian investment, Mr. Komárek assumed the leading role.