Reflecting on an Echo revamp

Larry Mullin's decision to step down as CEO of Echo Entertainment follows speculation of tensions within the group's senior management. It also sheds light on Brett Paton's surprise resignation.

Read with the knowledge of what happened today, the statement that accompanied the abrupt resignation of Echo Entertainment group director Brett Paton yesterday can be seen in a very different light.

Paton, a former Tabcorp director who chaired the demerger committee that oversaw the spinning off of Echo, issued a statement that could only be described as effusive and, for anyone who knows him, uncharacteristically so.

In it he lauded the current position and prospect of the group and crediting Echo’s chief executive, Larry Mullin and his operational team with the creation of a ‘’world class’’ destination and with executing the redevelopment of The Star casino on time and on-budget despite the general environment of cost-escalation.

Today Echo’s chairman, John O’Neill, announced that Mullin’s tenure as CEO would end in January next year and told analysts that the CEO role would now be more of an operational one less suited to Mullin’s skills.

Had it not been for Paton’s resignation and the tone of his letter the departure of Mullin, albeit not for four months, might have passed largely unremarked, although the prior forced departure of former chairman John Story in June and the ejection of former general manager Sid Vaikunta for alleged inappropriate behaviour could be woven into a story of instability at the top of the group.

Paton’s resignation and letter could be interpreted as a dramatic last-ditch attempt to influence matters within the boardroom. One suspects the praise for Mullin was deliberate and pointed at his fellow directors in an attempt to dissuade them from precipitous action. Paton himself is not someone who would be expected to act precipitously – he is very measured and analytical.

There have been suggestions of tensions between O’Neill and Mullin since O’Neill’s elevation to chairman after the abrupt departure of Story, as well as tensions between Mullin and his chief financial officer, Matt Bekier.

The Australian Financial Review reported this morning that Bekier had applied for the same role at Brambles earlier this year, although O’Neill said today he had been approached about another position. In any event, O’Neill is said to be closer to Bekier than he is to Mullin.

Paton, a vice chairman of the institutional clients group at Citi, had been involved with Tabcorp and Echo as a non-executive director since 2008. A long time very senior UBS executive, he has long been acknowledged as one of the best-connected and most knowledgeable capital markets experts in the country.

With Echo being stalked by James Packer and the Malaysian-controlled Genting group Paton’s investment banking background and relationships with institutions could have been a valuable asset for the small Echo board, which now has only three non-executives including O’Neill.

Anne Brennan is a former CFO of CSR and John Redmond has extensive experience in the US casino sector, so Paton’s decades of involvement in mergers and acquisitions and capital markets generally could have come in handy as the attempt by Packer to get access, one way or another, to Echo’s NSW casino licence in order to build his proposed high-roller
facility at Barangaroo warms up.

It is unfortunate, particularly with the potential for an outbreak of strategic activity if Packer, as expected, gains approval for an increased shareholding sometime quite soon, that Echo will have a caretaker CEO and a shrunken board.

The group, after the impact of the Vaikunta scandal and the subsequent inquiry into The Star had negatively affected its business, has started this year well with revenues up solidly in the first two weeks as a disruptive $900 million refurbishment and expansion finally nears its end. It looked to have put its ‘’issues’’ behind it and to have a stronger platform from which to negotiate with its strategic shareholders, or not.

Packer has applied to the gaming regulators to own up to 25 per cent of Echo while Genting’s Hong Kong arm has sought approval for a holding of more than the current 10 per cent cap on individual shareholdings.

It could be tempting to see the instability within the Echo boardroom as being related to the activity on its register, and Packer’s ambitions in particular, but it would appear that it has more to do with the personalities and internal politics than with the strategic activity.

Mind you, Packer won’t be displeased at the turn of events.

Instability within Echo’s senior ranks and tensions within its boardroom could help his cause and undermine some of the institutional resistance to the prospect of him gaining undue influence over Echo without making a takeover bid (which may or may not be Packer’s current intention).

Whatever the cause of that instability, the loss of a chairman, CEO and the non-executive best known to the markets this year has come at a bad time for Echo and its shareholders.

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