Echo Entertainment

So far corporate advisers have been the big winners from the demerger of Echo Entertainment and Tabcorp, with total shareholder returns (capital gains plus dividends) since the announcement of the demerger amounting to just 2%. Even worse, Echo shareholders are now being asked to chip in more cash.

Despite spending almost $1bn refurbishing Sydney’s Star Casino (now known as ‘The Star’), leasing two corporate jets to attract wealthy overseas gamblers, and inviting a posse of B-Grade celebrities to launch the casino’s new nightclub Marquee, so far the bet hasn’t paid off. Revenue growth has failed to meet expectations, and losses from lucky high rollers have triggered a profit downgrade. The volatility caused by a few wealthy punters is why the company has avoided competing aggressively for their money in the past.

Echo is raising $454m through a 1 for 5 renounceable entitlement issue priced at $3.30 per share. While we’re avoiding Echo for the reasons laid out in Friday Fishing: Punting on casinos from 30 Mar 12 (No View – $4.38), eligible shareholders might consider participating. The offer price is 27% below Echo’s last trading price, so you will likely be able to take up your shares and sell them at a higher price on market. If you don’t participate and your shares are sold to institutions prepared to pay over $3.30 per share, then you’ll receive the difference between the sale price and $3.30.

In addition, Malaysian casino owner Genting now owns 5% of Echo and local rival Crown owns 10%. James Packer wants the NSW casino license to build another casino at the Barangaroo development on the edge of Sydney’s CBD, so a takeover bid for Echo is a strong possibility. It could make for an interesting speculation, but we’re sticking with NO VIEW.