When allegations of sexual harassment at Echo Entertaiment Group’s showpiece Sydney casino the Star pushed its shares to an all-time low earlier this year, James Packer’s Melbourne-based rival Crown doubled its stake in the company to 10 percent and has asked for regulatory approval to buy more. Packer wants the only casino in Australia’s largest city so Crown can tap deeper into the booming market in VIP gamblers out of China.
Crown, however, may be jostling with Genting Singapore and Wynn Resorts in its bid to acquire Echo, analysts say. Genting is prepared to pay A$4.5 billion (US$4.6 billion) for the company, according to Macquarie Group. That would be 44 percent above Echo’s current market value and the largest offer for a gaming company in years.
“These kinds of licenses don’t come up every day,” said Sacha Krien, an analyst at CLSA Asia-Pacific Markets in Sydney. “They provide exposure to Chinese casino tourism. We believe a bid from Crown is imminent.”
News reports say the board of Echo “would be supportive of any transactional initiative” that boosts shareholder value, according to spokesman Brad Schmitt.
Echo, spun out of Australia’s largest sports betting group Tabcorp Holdings last June, has spent A$870 million since 2008 renovating the Star (formerly Star City), which is located at Sydney Harbour. The complex now features a new five-star hotel, private high-limit gaming rooms, gourmet restaurants and two leased private jets to fly in high-rolling gamblers.
“Echo’s undervalued,” one analyst said. “It’s opportunistic to buy it now because someone’s spent the money without the market giving them credit.”
Echo’s shares plunged to a closing low of A$3.48 on February 16 after the New South Wales Independent Liquor and Gaming Authority appointed an investigator to look into allegations that Sid Vaikunta, former managing director of the Star, sexually harassed two former female staffers. Vaikunta resigned, and the ILGA subsequently concluded that Echo’s management acted properly in responding to the allegations.
The scandal created an opportunity for Crown, which the same month became Echo’s largest shareholder with a 10 percent stake. Crown wants a seat on Echo’s board and government permission, which is required by Echo’s by-laws, to raise its holding.
In an effort to boost its bid, Crown has proposed building a competing casino and luxury hotel in Sydney at a development called Barangaroo near the the central business district. To do that, executives would need to convince Echo and the New South Wales government to grant a separate license, or let the company take over Echo altogether.
Meanwhile, the plot has thickened amid news that Australian fund manager Perpetual has applied for permission to raise its stake in Echo from its current 8 percent to above 10 percent, which would make it a key player in any move on Echo by Packer.
The Star’s value is seen as closely tied to the regional boom in VIP gamblers from China, most of whom are regularly squeezing into Macau, China’s only legal casino jurisdiction, to indulge their taste for super-high-stakes baccarat. Macau last year attracted 16.2 million mainland Chinese tourists and generated gambling revenue of US$34 billion, nearly six times the US$6.1 billion generated on the Las Vegas Strip. With Macau’s hotels running out of rooms, companies in Singapore and Australia are looking for ways to capture some of that money.
About 542,000 short-term visitors came to Australia from China last year, a 76 percent increase in five years, according to the country’s statistics bureau. “Eighty percent of travelers out of China end up going to a gaming venue on their first trip,” said David Wiadrowski, an entertainment and media partner at PwC in Sydney. “With the renovations at the Star, they’re trying to do as much as they can to attract as many as they can.”
Genting Singapore, the only large Asian casino operator without a stake in Macau, needs to add to its Resorts World complex in Singapore, according to analysts. Australia’s mature casino industry is well-placed to fulfill that role. Crown has a 33 percent share in Melco Crown Entertainment, which holds one of Macau’s six casino resort licenses.
Casino mogul Steve Wynn’s Las Vegas-based Wynn Resorts or its majority-owned Wynn Macau are also seen as potential suitors, according to UBS’s Theodore. “Genting’s in Singapore but it’s not in Macau. Wynn’s in Macau but it’s not in Singapore. It’s about adding another geographic option for their VIP customers.”