Billionaire James Packer has tapped UBS to sell his once-strategic stake in Echo Entertainment. There are three possible scenarios from this news, but one definite that onlookers can take away. Meanwhile, Billabong International is selling off an iconic brand in Canada and GrainCorp’s Alison Watkins dismisses concerns about the Archer Daniels Midland deal.
Crown, Echo Entertainment
News emerged late yesterday that Crown billionaire James Packer was selling his $264 million stake in Sydney casino rival Echo Entertainment. It quickly conjured a debate about what Australia’s casino king is up to.
After more than 12 months of waiting, Crown only recently secured approval from the New South Wales Independent Liquor and Gaming Authority to increase its stake in Echo. Quite some time has passed and now he’s selling it.
CLSA analyst Sacha Krein laid out three scenarios that could stem from the sale, which is being conducted by UBS.
Firstly, Packer is confident enough of winning the NSW government’s permission to build his $1 billion Barangaroo project, blocking Echo’s plans to expand The Star and ending its Habour City exclusivity, that he’s willing to part with the stake.
Packer: ‘To hell with the green light from the regulators, I’ve go this.’
Secondly, Packer no longer cares about Echo or his recently secured permission to increase his stake to 25 per cent. It’s either Barangaroo or some other dream project.
Packer: ‘To hell with the green light from the regulators, I don’t want them after all.’
This columnist is not suggesting that Packer has inside word from the New South Wales government that he’s going to win. But if Echo loses, there would be downside pressure on the share price not just from that disappointment, but the expectation that Packer would exit. It’s best to get ahead of the selling.
There was a third scenario thrown up – that Packer is trying to drive down the Echo share price for a full takeover offer later on.
Packer: ‘This oughtta confuse the hell outta them.’
This scenario is called a ‘conspiracy’, which is just as well. Most conspiracies look stupid on second viewing.
If Packer walks away from his stake and Echo wins the blessing from the New South Wales government, the share price will probably rise. That would leave him without a strategic stake, unlike Malaysian rival KT Lim, of Genting. Lim is also asking for permission to buy more Echo shares.
While it would be unwise to try to probe the mind of Packer too deeply in regards to a single decision he hasn’t commented publicly upon, remember he’s recently expressed admiration for fellow Australian billionaire Kerry Stokes for his ability to secure takeover targets without a premium.
Stokes, who often exploits the buying room afforded by ‘creeping provisions’ in the Corporations Act to slowly climb his way up a company’s register, would probably think a strategy like ‘selling big to buy cheap later’ is needlessly risky to say the least.
Crazy is probably a better word. This isn’t like shorting a common stock in a game of high-frequency piracy. If Packer wants Echo, it’s highly strategic.
The one and perhaps only thing that we can take away from this relates to the second scenario.
If Echo wins the battle of Sydney’s casino future, Packer has effectively declared that he won’t be their joint venture partner. The billionaire is more interested in other endeavours by the looks of it.
This is an important issue because Echo will probably have to raise capital to meet the funding requirements of its expansion plans in Sydney.
That would push the share price down. But the positive action from winning the NSW government’s approval could easily nullify that.
This is when the stake in Echo held by Lim makes a lot of sense. A major shareholder with no other obvious plans for Sydney becomes a joint venture partner.
For what it’s worth, this columnist quietly thinks Packer will win the NSW government’s approval for Barangaroo.
Unless the O’Farrell government does something unexpected, it has a choice between two ideas.
One is an expansion to an existing casino, The Star, which is in the process of recovering from some serious PR problems. That’s no disrespect to new Echo chairman John O’Neill and his efforts to patch things up.
But the other is a brand new project, designed to attract Asian high-rollers (which taps into Sydney’s long-standing desire to be a regional financial hub) built by Australian corporate royalty.
It’s looking increasingly unlikely that Billabong International will get a full takeover.
Never mind that the company’s books have been open almost constantly for a variety of suitors for over a year, The Australian reports that Billabong is looking to offload some stores in Canada.
According to the newspaper, the sale will include the 70-store West 49 chain, six Billabong stores, two Element stores and 18 trading under the name Amnesia.
Billabong shareholders will no doubt be hoping for a good dose of memory lapses when this whole episode is over.
“The business cannot stand still,” a company spokesman said. “We have previously detailed our plans around transformation and global simplification including retail, and where and when appropriate we will action them.”
We don’t have access to any further conditions under which former Billabong director Paul Naude and Sycamore Partners have entered into discussions with the company over a 60 cents a share proposal. That’s if there are any.
One of the standard conditions is that when a suitor puts down a bid, or even an indicative proposal, that the target cannot sell any businesses. Otherwise all bets are off.
Is this a sign that all bets are off with Billabong? This columnist sure hopes not. We’ve already lost the Falcon this week – another Australian icon would be a lot to bear.
GrainCorp boss Alison Watkins comfortably batted away concerns at a function in Sydney that suitor Archer Daniels Midland would restrict access to its export terminals if it secured the grains exporter.
Moving to hard commodities, Ivanhoe Australia is changing its name to Inova Resources as parent company Rio Tinto ‘reviews’ its majority stake. A new name for a new life alone?
In iron ore, Fortescue Metals Group says Brockman Mining will need to ensure that other smaller producers will not be precluded from using its infrastructure if it gains access.
The condition is part of a submission to Western Australia’s Economic Regulation Authority.
Meanwhile, Brisbane’s Cromwell Property Group has launched a $250 million capital raising to help pay for the $405 million in office properties that it has picked up from the NSW government.
The company is seeking $128 million from institutions and $122 million from retail investors via a one-for-12 offer at $1 a piece. That’s a pretty slim 3.8 per cent discount to the five-day volume weighted average price, which is a good sign for Cromwell’s confidence.
And finally, Seven West Media has reportedly picked up the rights for two upcoming A-League games against British Premier League giants Manchster United and Liverpool.
The former player is an A-League all-star team, while Liverpool will go up against Melbourne Victory.
For football fans, with Sir Alex Ferguson gone and Manchester going up against a relatively weak opponent (given the size of their payroll), the out-of-favour Wayne Rooney might actually get a game.