Gaming billionaire James Packer has played his Sydney hand brilliantly. He’s poised to collect a licence to build a casino at Barangaroo and has a hand on his main rival Echo Entertainment. This morning, two commentators have a look at just how well this hand was played.
Also in this edition of The Distillery, Fairfax Media got through yesterday relatively unscathed if you think about the fire that’s flown between the board and major billionaire shareholder Gina Rinehart. But the prospect of a company break-up won’t come from within.
But first, Fairfax’s Elizabeth Knight says when Packer met his Echo rivals a few months ago he left them with the impression that whatever happens, he’ll get a Sydney casino with their help or not.
"Thanks to Packer's open-armed embrace from both sides of New South Wales politics, it has become increasingly clear that his Crown casino empire will probably have the opportunity to build a high-roller gaming mecca in Sydney's foreshore at Barangaroo Point without the need of an Echo partnership. What has also been made abundantly clear from both these casino operators is that Packer never wanted to operate his Sydney glamour gaming facility out of Echo's The Star at Pyrmont. Packer's plan was always to piggyback the Echo licence to get into the Sydney market and build his six-star dream, or get NSW government approval to build it alone. He was keeping his options open by buying 10 per cent of Echo and seeking regulatory approval to increase that to 25 per cent.”
The Australian’s John Durie explains just how good a job Packer has done softening up both sides of politics given the…externalities that casinos tend to produce.
"Problem gambling issues have been pushed aside by Ken Henry's lavish praise for Packer's Asian smarts on the eve of this weekend's launch of the government's Asian taskforce report. We also know well, through the recent publicity blitz, that Packer is a huge supporter of indigenous employment. NSW Premier Barry O'Farrell would perhaps not take kindly to being such an obvious pawn in the game as the NSW opposition, but that remains to be seen. We are, after all, talking about a gaming house, and a second one in Sydney, when problem gambling is an issue.
Meanwhile, Fairfax’s Malcolm Maiden explains how yesterday’s annual general meeting of his employers was as notable for what didn’t happen as for what did happen. Remember, Rinehart hasn’t had the greatest relationship with Corbett and there was not sign of the share price performance target for the chairman that she’s previously called for.
"That is not to say there was any group-hugging going on. Klepec kept his counsel during the meeting, but at the end of it he lodged Rinehart's votes and demonstrated the power that she can wield from outside. Proxy votes on Fairfax's remuneration report were running 81.6 per cent in favour of the report ahead of the meeting. After Klepec voted Rinehart's 14.98 per stake in Fairfax against, the vote in favour of the report was cut to 65 per cent, so she single-handedly delivered a ''first strike'' on remuneration that was in essence a protest vote. If the vote against the remuneration report is once again above 25 per cent at the next annual meeting, shareholders will consider whether to force all directors to stand for re-election in a ''spill vote'' that only requires a 50 per cent majority. Rinehart may be in a position to decide the outcome again if she maintains or builds her stake.”
With Fairfax’s market cap consistently failing to reflect the value of Fairfax’s individual components, many analysts and investors have been urging for a company break-up, with Allan Gray managing director Simon Marais being the most prominent. But as Business Spectator’s Stephen Bartholomeusz explains, Corbett left Fairfax shareholders with the clear message that management had examined the break-up scenario and concluded that it wasn’t worth the risk.
"The costs, the loss of synergies, the creation of negative synergies, the need for cash reserves in the metro business to support continued restructuring and the implications for the borrowing capacity of that business argued against that option. In fact the conclusion was obvious. Fairfax has about $1 billion a year of revenue and more than $100 million of earnings before interest, tax, depreciation and amortisation tied up in what is an integrated metro print and digital business that includes and supports its digital transaction businesses. If there is to be any recovery, however modest, of the massive amounts of shareholder value that has disappeared from the group in recent years – or the avoidance of even greater pain – it can only lie within the substantial digital audiences the group has created.
Meanwhile, The Australian’s Judith Sloan reports on the Business Tax Working Group’s draft final report, where the task was to come up with a formula to reduce the company tax rate in a revenue neutral way, confined only to the business tax space.
"The working group report is quite clear that the task given to it by the government is unachievable. The group is ‘unable to recommend a revenue-neutral package to lower the company tax rate’.”
Spectacular! The Australian Financial Review’s Chanticleer columnist Tony Boyd comes to a similar conclusion.
The Australian’s Asia Pacific editor Rowan Callick simply can’t wait for the release of the white paper Australia in the Asian Century – it’s just four more sleeps.
From the gist of his coverage over recent months, Callick is the best-placed journalist to analyse the white paper when it’s released. We’ll be sure to check in with him when the important document does finally drop.
In company news, The Australian Financial Review’s Matthew Stevens says Nathan Tinkler is a horseman, a brinkman and a near-billionaire. But one thing you can’t call the former sparky is boring.
The Fairfax writers make the point that Tinkler appears to have targeted his own by threatening to use his 19.4 per cent stake against Whitehaven chairman Mark Vaile. He’s only there because Tinkler made him chairman of Aston Resources before its merger with Whitehaven.
Elsewhere, The Australian’s economics editor David Uren explains how many of the ‘structural savings’ that Labor is making in the budget are being smashed by spending increases.
And finally, The Australian Financial Review’s economics editor Alan Mitchell argues that the stronger than expected September quarter inflation numbers are more likely to simply delay the next rate cut, rather than cancel it out completely.