- Casino operator Donaco International (DNA) has settled an ongoing legal battle over its Cambodian Star Vegas casino today
- The legal action started in 2017 when Donaco sued its Thai vendors for breaking a non-competition agreement
- Allegedly, the vendors were operating a competing neighbouring casino without Donaco’s permission
- The vendors fought back, however, and Donaco’s ownership of Star Vegas was on the line if it lost the case
- Donaco and the vendors came to a settlement today, but it might seem bittersweet to shareholders
- While Donaco will walk away empty-handed, the vendors will get to keep operating the neighbouring casino as before with no consequences
- Still, shares in Donaco are trading over four per cent higher today at seven cents per share
Casino operator Donaco International (DNA) has finally put its legal woes aside as its ongoing court case over the Star Vegas casino in Cambodia comes to an end.
Donaco settled the case against the Casino’s Thai vendors, namely Somboon Sukcharoenkraisri, Lee Bug Tong, Lee Bug Huy, Lee Hoe Property Co., and Paramax Co., today. While shareholders are likely relieved the legal action has been resolved, it seems Donaco is walking away with pockets just as empty as when the litigation began.
A two-year battle
Donaco first took action against Star Vegas’ Thai vendors in 2017 when a management agreement for a neighbouring casino expired. The casino in question, Star Paradise, is owned by the family of Donaco’s Thai vendors.
Allegedly, the vendors were not allowed to keep operating the adjoining Star Paradise gaming room without Donaco’s permission as per the details of the Star Vegas agreement. However, in a breach of non-compete provisions in the contract, Star Paradise continued to operate.
As a result, Donaco sued for US$190 million (A$290 million) in damages. The legal action was launched in November 2017.
Over the next two years, Donaco and the Thai vendors had a nasty legal back-and-forth as the vendors fought back, and the future of Star Vegas was on the line. Initially, the arbitrator ruled in favour of the vendors, but in August 2019 Donaco filed five separate appeals to the Appeal Court in Phnom Peng in Cambodia.
Donaco was granted an appeal and the battle was on once more.
Today, the company told shareholders that a settlement has been reached and Donaco will stay in control of Star Vegas. However, Donaco had to concede some considerable ground to steady the ship.
A bittersweet settlement
The settlement agreement will see Donaco receive a US$38 million (A$58 million) payment to scratch out the non-solicitation and non-competition clauses in the Star Vegas sales agreement. However, the cash will not spend long in Donaco’s bank.
Donaco will pay US$18 million to settle the claims for unpaid management fees plus interest. Further, another US$20 million will be paid to Lee How Property to cover any outstanding rent and an additional lease payment — meaning the full US$38 million pay-out will be paid straight back.
On top of this, the management agreement between Donacon and the Thai vendors will be terminated as part of the settlement.
Essentially, the settlement means not only will Donaco leave empty-handed, but the vendors will get to keep operating the Star Paradise game room as before with no consequences.
What gives?
This begs the question: why was Donaco happy to end the legal battle and see the defending party walk away scot-free?
Donaco said in an announcement to the ASX today that throughout the legal battle, Star Vegas stayed profitable and pulled in positive cashflow for the company. As such, maintaining control of the casino was of the highest priority.
If the matter was not settled, the Star Vegas lease was at risk of being terminated. The result would have been the closure of the business and full write-off its remaining value.
Chairman Mel Ashton said the settlement gives the company a stable platform to keep moving forward in two key areas:
“Firstly, continued improvement to the financial position of the company, as demonstrated by our 23 per cent reduction in borrowings at the recent half-year result, and looking forward making sure we have in place the necessary facilities to weather the short term impacts of COVID-19 in the current half,” Mel explained.
“Secondly, resolution of the uncertainty around the dispute will allow us much greater leverage in addressing the conditions around contracts with third-party vendors which we are seeking to move on to more commercial terms, in line with our focus on operational and corporate expenses, to improve efficiencies across the business,” he said.
It seems shareholders are content with the removal of uncertainty from today’s settlement for now, with Donaco shares spiking this morning until settling 4.48 per cent up at mid-afternoon trade. Currently, shares in Donaco are worth seven cents each.