Packer's latest tactical bet has market guessing

James Packer is used to getting what he wants, even if it comes at a price.

James Packer is used to getting what he wants, even if it comes at a price.

The sale of Crown's 10 per cent stake in rival casino operator Echo Entertainment on Thursday evening crystallised a loss as high as $38 million, according to analysts. But it sent a clear message - Crown is taking one shot at Barangaroo with its direct application for a casino/hotel complex, and Echo was not a plan B.

The media focus has been on the logical juncture for Crown to make a decision about the sale of its Echo stake - namely the NSW government's decision next month on whether Crown gets a licence for its development at Barangaroo.

If Crown lost, plan B was then expected to be a takeover bid for Echo. It would have meant Crown could decide the future of its stake as Echo's share price rose to reflect a potential takeover premium, although this would have had its own complications once it became clear Crown was a seller.

The rationale for Crown selling now was "difficult to understand", said Mark Bryan, an analyst at Bank of America/Merrill Lynch.

Crown's confidence in its submission was about the best reason most analysts could muster.

"We do not believe one can read too much into the implications for Crown's proposed casino in Sydney from this decision as submissions are due June 21. However, it does appear as though Crown is optimistic that its proposal will be successful," said Deutsche Bank analyst Mark Wilson.

What has not been mentioned, and will be more difficult to gauge, is the pressure now on the NSW government to make sure Mr Packer's deal is approved if it does not want to risk him walking away.

Crown sources say the company has always maintained it will decide the future of its Echo stake once the status of its application to the NSW and Queensland casino regulators had been determined. The Queensland regulator finally followed its NSW counterpart on Monday in raising the cap on Crown's stake on Echo from 10 to 23 per cent.

The Crown board met on Thursday and decided to sell its shares that night. On Friday, Crown issued a statement from Mr Packer saying it had sold its stake in order to "pursue the Crown Sydney Hotel Resort without speculation surrounding its Echo shareholding". Mr Packer said: "Crown Sydney is a once-in-a-lifetime project for our company," and "we are working as hard as we can to make this goal a reality".

The market seems to be treating the sale as a permanent retreat from Echo. The would-be target watched its shares plunge more than 10 per cent during trading on Friday, falling below the $3 mark for the first time.

Asian casino group Genting is still applying to raise its stake in Echo to 25 per cent, but given it is not even halfway to the current 10 per cent ownership cap, no one is holding their breath on its potential as a suitor for Echo.

When it comes to the NSW government's final decision over the unsolicited proposals from Echo and Crown, victory would not come without concerns from financial markets.

Crown's interest in Echo was expected to protect Echo investors from the prospect of the company overpaying to effectively extend its casino monopoly in Sydney, according to Commonwealth Bank gaming analyst Ben Brownette.

But a win could pressure Crown to address concerns about how it would justify the economics of its Barangaroo project.

From day one, Crown has insisted the VIP gaming rooms are needed to underpin the economics of the luxury hotel and has since added apartments. Analysts are not sure even this would be enough.

"We do not believe Crown Sydney will make an economic return as the anticipated capex has increased to $1.2 billion to $1.5 billion, notwithstanding that the costs could be defrayed by the sale of 80 apartments," Mr Wilson said.

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