THE DISTILLERY: Mullin rolls the dice

Jotters ponder Echo's future following the departure of its CEO, while one investigates the group's ability to deal with a potential takeover tussle.

Within two days a gaming company loses its chief executive, along with a board member that’s a key supporter of the recently installed chairman. That’s the lay of the land at Echo Entertainment, currently being stalked by gaming billionaires James Packer and KT Lim.

Fairfax’s Malcolm Maiden introduces all the characters nicely in his exposition.

"Brett Paton's reasons for quitting the board of Echo Entertainment, the owner of Sydney's Star casino, became clearer yesterday when Echo's chairman John O'Neill announced that the chief executive, Larry Mullin, would also be leaving the company. At an investor briefing yesterday, O'Neill said that as far as he knew the two events were not linked. The announcement that Mullin would stand down at the end of January raised questions about Echo's preparedness for a potential takeover tussle that dominated the briefing, however, and it is inconceivable that Paton wasn't asking them too ahead of his resignation as a non-executive director on Tuesday.

"Mullin joined O'Neill for the investor briefing, and both men said the time for a change had come. Mullin had overseen Echo's spin-out from Tabcorp and a revitalisation of its key asset, The Star casino in Sydney, but a $900 million upgrade that positions Star to host larger events and chase high-roller gamblers would be complete by early in the New Year, creating a baton-pass opportunity, O'Neill said."

The Australian Financial Review’s Matthew Stevens agrees that Mullin’s departure helps explain the resignation of Paton, while adding the CEO is stepping down in January with a 457 visa said to be expiring in February.

"But it has to be said that there is not a whole lot else to like about the latest unedifying expression of trauma within the substructures of Echo’s management and board. The optics here look ugly and Echo chairman John O’Neill knows it. He accepts that it looks like chaos but insists that appearances deceive and that – at least when it comes to matters Mullin – this is a situation that has been some time in the making. In the 16 months since Echo was separated from Tabcorp it has endured a sexual harassment scandal that cost The Star casino boss his job and fractured relationships with the NSW government and its regulators; lost a chairman to turmoil triggered by the aspirations of senior shareholders; shed a director from its already diminished board for reasons that were not clear until yesterday; and now it has agreed to part ways with its managing director. And all of that has occurred within a framework of increasing uncertainty over who might want to own Echo.”

The Australian Financial Review’s Chanticleer columnist Michael Smith tells a good yarn about one of the first sit-downs that Australian gaming analysts got with Mullin, which left attendees with the impression that the Americans had some to Sydney casinos.

"Gaming and entertainment are his life and that is where Mullin, who previously ran casinos for Donald Trump, excelled. Investor and government relations, balance sheets and all the less glamorous aspects of running a listed company are not his forte. This is one of the reasons chairman John O’Neill decided to part ways with Mullin yesterday, but as usual with a company like Echo the story is not that simple. The official line is that Mullin has achieved what he set out to do and it is a logical time to go as the company enters a new operational phase. The chief executive’s main job has been transforming Sydney’s Star casino into an upmarket entertainment venue and overseeing the hiving off of Echo from Tabcorp. However, that explanation and the bizarre timing of the announcement are not washing with investors.”

And also in this morning’s edition of The Distillery, we have The Australian Financial Review’s resources reporter Jamie Freed. This column is a big fan of contrarian arguments.

"Many investors are very bullish about iron ore in West Africa, but the bear case doesn’t get as much airplay – even though it is a positive argument, but in favour of projects in Australia and Brazil. So now for the contrarian case: Investing in iron ore in West Africa is hard work with high risks, and a superficial cost advantage won’t necessarily make for higher returns. Take the best-known project, Rio Tinto’s $US10 billion-plus Simandou development in Guinea. It offers a much higher grade of ore than the Pilbara, the local labour is cheap and there’s the possibility of Chinese construction help. But on nearly every other indicator, Simandou does not stack up well against the Pilbara.”

In other mining-related news, Fairfax’s Adele Ferguson, an unofficial biographer of Gina Rinehart, writes that the house of Rinehart shouldn’t be particularly surprised that a case is being brought against in by the house of Wright, given the dispute over Rhodes Ridge in 2001.

Fairfax’s mining reporter Peter Kerr has picked up on comments from Baosteel assistant president Zhang Dianbo that Australia shouldn’t expect its iron ore industry to be particularly re-energised by a stimulus program in China. The best line in the piece "$150 billion on infrastructure projects would lift little more than sentiment”.

In other company news, The Australian’s John Durie says Westpac Bank’s Brian Hartzer, former Royal Bank of Scotland executive and likely successor to chief executive Gail Kelly, has a firm focus on customer service.

Meanwhile, Fairfax’s Michael Pascoe delivers the most honest discussion about third world labour that this column has seen in Australian business pages in quite some time.

The Australian Financial Review’s economics editor Alan Mitchell makes a succinct, compelling case about the budget’s pending structural slide into deficit as our ageing population puts strain on government resources. The Australian’s economics correspondent Adam Creighton similarly warns that Australia’s fiscal position is not nearly as peachy as we might think, given that most comparisons are made to Europe which is a dead-set basket case.

The Australian’s Glenda Korporaal reaches a little too long to get a Mitt Romney angle to Labor’s policy intentions in Australia – the reverse Romney. Her colleague, David Uren hits some similar notes in his piece on Bill Shorten’s raid on the Australian superannuation industry.

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