Things never quite go exactly to plan do they? James Packer found this out last Friday, when he succeeded in forcing John Story, chairman of casino group Echo, to finally stand down, only to learn that Singaporean casino giant Genting has emerged with a significant stake in Echo.
For now, at least, it appears the arrival of Genting has come as a surprise to the Packer camp and reports suggest that Packer is off to meet with Genting’s billionaire backer KT Lim this week.
While the media might relish the prospect of two billionaires going head to head in a battle for control of Echo, shareholders in Genting and Crown might not be so keen.
Indeed, Genting shares fell to an eight-month low after its stake in Echo was announced and Crown shares dipped almost 3% on Friday, before recovering most of the lost ground yesterday.
Takeovers, of course, involve takeover premiums, something John Story repeatedly accused Packer of trying to get out of paying during Packer’s brutal attack on Story. The arrival of Genting on the Echo registry makes it impossible that Packer or Lim will be able to get hold of Echo outright without paying a very full price. You can understand why investors would be nervous about the prospect of a bidding war.
So what are Packer’s options?
The first would be to move towards a full takeover, something that could probably only happen if he is able to sell his stake in Consolidated Media and tip this cash into Crown.
The second option is some sort of alliance between Packer’s Crown and Lim’s Genting, which would seem much more sensible, providing the two companies are willing to share the spoils. It would seem to make sense for Genting to allow Crown to use its experience in the Australian market; in return, Crown could tap Genting’s financial firepower to grow Echo’s local business.
However, Genting has a market capitalisation of $14 billion compared to Crown’s valuation of $6 billion. It just might be prepared to take Packer on.
The third option for Packer is to play something of a waiting game. Echo is set to take advantage of the lift in its share price provided by Genting’s move and raise $250-450 million to help fund its on-going refurbishment of The Star casino in Sydney, and it could be that Packer will be happy enough to see how this plays out.
He can let the dust settle, talk with KT Lim about his intentions and wait for another opportunity to launch a fresh attack, perhaps if Echo’s management slips up again.
What’s clear is that the game has changed significantly for Packer since last week. What’s not so clear is his next move.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
