James Packer’s stalking of Echo Entertainment is becoming 'curiouser and curiouser'. From the substantial shareholding notices Deutsche Bank filed on Friday it would appear that Packer asked for a board seat last week without actually owning any shares.
While that’s not inconsistent with what his Crown told Echo when it requested a seat on Echo’s board – it said it held an interest of 10 per cent through a derivative – until it settles that transaction and acquires the 9.2 per cent of Echo Deutsche has accumulated it has no standing as a shareholder to ask for representation.
Like a number of aspects of Crown’s campaign to get access to Echo’s Sydney and Queensland casino licences, it would appear Crown has acted slightly prematurely. It is unclear why there is such urgency, given that Packer’s grand plan for a second Sydney casino under the umbrella of Echo’s licence would take years and more than $1 billion before it could be realised.
Packer himself has been very active in lobbying for his vision of a new VIP facility within the Barangaroo development on the western edge of Sydney’s CBD, granting numerous interviews and, apparently, planning an appearance on 60 Minutes to promote his plan.
The Barangaroo plan – a new luxury facility for VIP gamblers – is being dangled before the NSW government as bait for the removal of the 10 per cent legislative restriction on shareholdings in Echo. If that isn’t removed, Crown’s plan of lifting its interest in Echo to just under 20 per cent and then creeping its way to control would be thwarted.
Even if it were removed there would be a number of obstacles to the proposal.
The most obvious is that Echo isn’t interested in giving board representation to a company with which it competes – with accelerating success – for VIP gamblers. It is even less interested in the notion of allowing Packer to take effective control without making an offer to all shareholders.
It would also appear a reasonable assumption given that it has spent more than $1 billion upgrading Star City and plans a massive overhaul of its Queensland casinos, probably bemused at the notion that it should spend another $1 billion to $1.5 billion to create a second facility in Sydney.
Given that under Packer’s plan it would be Echo that funded and built the new complex, its directors might also question why, if the idea were worth pursuing, it needs to allow Crown effective control in order to pursue it.
The Star City renovation is, as it nears completion, producing strong results, particularly in its VIP gaming revenues, which are soaring, albeit off a low base. Presumably at least some of that growth is at the expense of the Crown complexes in Melbourne and Perth.
The apparent haste with which Crown is acting may be related to a desire to ‘get set’ on the Echo register before the remaking of Star City has been completed and the financial returns from the massive investment become more apparent.
The fact that Echo and Crown became competitors for that business, once Star City decided not that long ago to compete in the VIP segments it had previously steered clear of because of their volatility, means the Australian Competition and Consumer Commission also represents an obstacle to Packer’s ambitions. In terms of the general gaming floors the two big casinos might be state-based monopolies but that’s not the case for VIP gambling.
The other problem Packer will have, despite the initial enthusiasm of the NSW government for a plan that would involve a lot of investment and jobs and prospective tourism, is that Echo has an exclusive single-site licence in Sydney until 2019.
It would take legislative change to allow the Barangaroo concept to proceed and at some point the government will ask itself why, if there is to be a second casino in NSW, it shouldn’t test the global market for the best project with the best return to taxpayers and conduct a tender for it, presumably with a 2019 start-up date for any new facility to avoid having to compensate Echo.
Before he can do anything else Packer needs to get his hands on the stock Deutsche has accumulated, apparently most of it borrowed from third party investors.
It wouldn’t surprise if Echo referred the Deutsche/Crown arrangements to the Takeovers Panel, arguing that they constituted unacceptable circumstances and that, in the context of what Crown itself has depicted as part of a control transaction, the market has been highly uninformed.
Echo could also be expected to do some lobbying of its own with the NSW and Queensland governments, seeking to have the 10 per cent shareholding limits retained rather than allow a competitor influence or even control of those states’ major gambling complexes in a process that would deny its own shareholders access to a premium for the control that Crown is pursuing.