The board strategy that media billionaire Kerry Stokes unleashed on West Australian Newspapers to secure control without a takeover premium is an old trick. But following the disastrous result for WAN shareholders courtesy of the Seven Group share price tank, Australia’s business commentators are warning Echo Entertainment shareholders against making the same mistake with gaming billionaire James Packer.
The Australian’s John Durie points out that one of the institutional investors that helped Stokes get over the line with WAN is also sitting on the register at Echo.
"At Echo the big two are Perpetual with 10 per cent and Ausbil with 5 per cent. The latter, of course, supported Kerry Stokes when he rolled his private company into WA Newspapers. Since that transaction, the Seven West Media share price has fallen 68 per cent against the 14.5 per cent market fall, even with the addition of China-friendly Caterpillar franchise assets. In short, Stokes made money instantly on the deal and minority shareholders are still waiting for their return. When Stokes rolled the board of WAN, Bruce Teale at blue-blood Melbourne fund manager AFIC proved to be a crucial supporter. The prize for Packer with Echo is, of course, control of another geographic monopoly and potential significant synergy benefits by combining the two businesses."
The Australian Financial Review’s Matthew Stevens asks the simple question of why any Echo shareholder would want to surrender control of the company over to a competitor without a premium? Then he hits the same note as Durie.
"I mean, it currently owns all of a licence to operate the only casino in NSW until 2019. Which gives it a window of another seven years to ratchet up its market share ahead of any debate over who should own that licence and whether or not it should remain exclusive. That exclusivity is part of the Echo value proposition and it beggars belief that any independent board would want to surrender a part of that to a shareholder who is a competitor with extracting a premium that reflects the potential value diminuation. Now, much is made of the obvious fact that Packer is following the Kerry Stokes template here in that he appears set on asserting a shaping influence over a board from a minority ownership position. But if I am an Echo shareholder, I would want to hope that what Stokes did at Western Australian Newspapers, Packer cannot do for Echo.”
Indeed Crikey founder Stephen Mayne also appeals for the interests of Echo shareholders, while casting doubt on what initially looked like a genius move by Packer to put former Victorian Premier Jeff Kennett forward as a replacement for John Story.
"In arrogantly proposing Jeff Kennett as an Echo Entertainment director, James Packer is assuming that independent regulators in Queensland and NSW will approve Crown’s request to move about 10 per cent. What about due consideration of all the submissions? There’s also the small matter of Kennett being subjected to probity tests in Queensland and NSW, not to mention Crown’s obligation to the Victorian government to retain Melbourne’s primacy in casino tourism. So much for Kennett being a loyal Victorian! And all this is before we even talk about the question of minority Echo shareholders and the need for a full bid with an appropriate control premium.”
In other company news, The Australian Financial Review’s Chanticleer columnist Tony Boyd says the unexpected restructuring costs at Target have raised more questions about whether Wesfarmers should have offloaded the business. The Age’s Michael West argues that Hancock Prospecting’s failure to comply with not filing its accounts on the grounds that it would reveal sensitive information to its competitors raises questions about what exactly the corporate laws in question are there for.
In economic matters, The Age’s Adele Ferguson says the Reserve Bank will take the latest uninspiring ABS retail data seriously. The Sydney Morning Herald’s Michael Pascoe delves a little deeper and finds some hidden stories in the numbers.
The Australian’s economics editor David Uren explains just how much Australians have benefitted from our nation’s role as commodity supplier to China, while his colleague Robin Bromby says China is stepping ever closer to becoming a greater influence on commodity prices through the Shanghai Metal Exchange. Fairfax’s China correspondent John Garnaut finds Beijing refusing to yield to the desire of global investors for another headline stimulation package.
And finally, the same newspaper’s Asia-Pacific editor Rowan Callick says Trade Minister Craig Emerson has been the bearer of good news with the Free Trade Agreement with Malaysia and Beijing’s stimulatory considerations.
THE DISTILLERY: Packer template
Jotters worry Echo Entertainment shareholders will become victims of a Seven-esque takeover, while one raises doubts about Target's restructuring.
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