If you want to buy us, you’ll have to pay up: Chairman of casino group Echo Entertainment warns circling James Packer
Gaming billionaire James Packer could further entrench his position as Australia’s casino king, after his company Crown Limited increased its stake in rival casino operator Echo Entertainment and flagged an interest in boosting the holding to 20% - if regulators will allow it.
But Echo says any takeover bid must be complemented by a takeover premium and has indicated it is unwilling to give a board seat to its major rival.
Echo, which was spun off from Tabcorp in 2011 and has just released a maiden half-year profit of $70.2 million, has seen Crown double its stake to 10% over the past few days.
But no one shareholder is allowed to own more than 10% of the company, which operates Star City Casino in Sydney, Jupiters Hotel and Casino on the Gold Coast, Treasury Casino & Hotel in Brisbane and Jupiters Townsville. Echo, capitalised at $3 billion, also has the exclusive right to operate casinos in Sydney until 2017.
Crown, which has hotels in Melbourne, Perth and Macau, has applied to the relevant gaming authorities in New South Wales and Queensland to go beyond the shareholder cap.
After telling the market on Friday that it had paid $256.6 million, or $3.37 per Echo share, for the increased stake, Packer has told The Australian newspaper that Crown will push to own a 19.9% stake in Echo, pending approval from New South Wales and Queensland gaming authorities, and will also request two of its directors be put on the Echo board.
But Echo has already rejected a bid for a Crown directorship, citing conflict of interest.
"By letter to the chairman of the Echo Entertainment Board today, Crown requested that the board agree to the appointment of a Crown nominee,” Echo told the sharemarket on Friday.
"Having regard to the interests of all shareholders, the board believes it is inappropriate for a Crown nominee to be appointed to the board as Crown is a competitor organisation. It has therefore not agreed to the request.”
And although Echo chairman John Story has conceded that a merger between the two casino companies would deliver synergies, he says the company is concerned that the stake was a “covert way of obtaining control without making a full takeover offer or paying a takeover premium.”
“No doubt if you were to merge Echo and Crown there would be synergies to be realised. But if Crown wants to acquire Echo there has to be a premium for control,” Story told the Australian Financial Review.
“There are other global players who I am sure would like an opportunity to take over Echo and would be prepared to pay a premium.”
Perpetual Investments, which has major shareholdings in both companies, is reportedly in favour of a merger, but only when an appropriate premium is offered.
Packer, who has received a preliminary thumbs up from NSW Premier Barry O’Farrell for his plan to use Echo as a vehicle to build a $1 billion-odd casino development at Sydney’s Barangaroo, told the paper Crown was focused firstly on having the 10% shareholder cap removed.
The gaming billionaire added that he had “learnt a few things” from media investor Kerry Stokes.
Releasing its maiden first-profit on Friday, Echo said after a period of “sweeping development and improvement” its focus has now shifted towards making its operation as efficient as possible.
Chief executive officer Larry Mullins said the outlook for the second half remained positive despite a “tough consumer environment”, with a nightclub and additional VIP facilities to be opened in the next 12 months.
"The business can progress now to a more steady operating model as we continue to drive revenue growth but also streamline the cost base to the most efficient structure.”