There are a number of different interpretations one could place on Crown Ltd’s decision to amend its application to the NSW and Queensland gaming regulators for approval to acquire more than 10 per cent of Echo Entertainment but the most obvious is probably the right one.
Crown, the core of James Packer’s casino empire, announced back in February that after acquiring a 10 per cent interest in Echo it had applied to the NSW Independent Liquor and Gaming Authority and the Queensland Office of Liquor and Gaming Regulation for approval to increase its voting power beyond the 10 per cent limit.
Today Crown said it was now seeking approval from those regulators to acquire more than 10 per cent of Echo’s shares but subject to a new condition that it would not acquire more than 25 per cent of the operator of The Star casino in Sydney without first seeking and obtaining further approvals from the regulators. The regulators have accepted the amendment but Crown said no decision had yet been made as to whether they would grant the application.
It is no secret that Packer wants board representation and some influence within Echo as part of an ambitious plan to build a new $600 million dedicated high-roller facility within the new Barangaroo precinct in Sydney. With Echo holding an exclusive licence to operate a casino in Sydney until 2017 Crown has to work through Echo if it wants to develop that facility.
Gaming regulators work at their own pace and are, for good reason, very diligent. It took about seven months for Perpetual Investments, an institutional investor, to get approval this week to increase its shareholding in Echo to a maximum of 15 per cent (although it has been a seller this year and now owns less than 5 per cent of Echo).
With Singaporean gaming giant Genting also on the Echo register, with just under 10 per cent, and also having applied for approval to go beyond the 10 per cent limit and its ultimate ambitions not clear, Packer may have felt it would be tactically important to speed up Crown’s approval process.
By making it clear that he wasn’t seeking control at this stage – and giving the regulators reassurance that Crown would have to submit a new application and undergo a new and different type of investigation if his own ambitions changed – he has probably made it somewhat easier for the regulators to assess the current application and therefore to process it more quickly than might otherwise have been the case.
Crown couldn’t, of course, go straight to 25 per cent even if it obtains the necessary approvals, given the 20 per cent takeover threshold. The initial ceiling on his potential shareholding, however, does tend to support the thesis that he isn’t at this point after control of Echo but meaningful influence and a material economic exposure to that business.
After Crown’s aggressive campaign against former Echo chairman John Story ended in his reluctant departure ahead of an extraordinary meeting of shareholders called by Crown, Crown said it looked forward to having discussions with Echo and its new chairman John O’Neill and "exploring opportunities to work together to create value for all shareholders".
At face value that would tend to suggest a joint venture or some other form of relationship to build and perhaps operate the Barangaroo facility. It is quite conceivable that there could be significant common interest in the two big Australian casino operators working together to expand the high-roller business.
The wild card is Genting, which has expansive gaming interests around the world. If its intention is to bid for Echo, Packer’s own hand might be forced. It is also possible that Genting, which owns one of the giant new Singaporean gaming and entertainment complexes, simply wants a seat at the Echo table. Packer does tend to prefer negotiation to hostilities.
Crown would be in a stronger position to respond to whatever Genting plans if the proposed $2 billion News Corp bid for Packer’s Consolidated Media Holdings eventuates and is concluded relatively quickly, releasing about $1 billion of cash for Packer that he could use to maintain his control of Crown in the event it has to raise a big lump of capital.
With a shareholding of 20 per cent, and ideally 25 per cent, however, Packer would have his own seat at the table and would need to be dealt into any plans that Genting might have to acquire Echo.
If he can get that approval for the amended application relatively quickly and move to 20 per cent before Genting (which started its approval process only a week ago, about four months later than Crown) gets past the regulators, Packer will have created significantly more flexibility, options and influence over Echo’s future than he has today.