Like a winning gambler with money burning a hole in his pocket, Genting is eyeing Australia’s Echo Entertainment in a takeover bid, according to the Macquarie Group.
Echo was spun off from Tabcorp last year, and since then has seemingly been spinning out of control. Owner of the profitable Star Casino Resort in Sydney, Echo has been embroiled in a scandal for the past few months that has gone all the way to New South Wales Prime Minister Barry Farrell. It has resulted in the sacking of several Echo executives and the resignation of a key Farrell deputy.
Right from the start, however, Echo was seen as a takeover target. James Packer’s Crown Casinos has invested in the company, and has recently sought regulatory approval to buy up to a 20 percent stake. But now Macquarie analyst Gary Pinge believes that Genting Singapore, a subsidiary of the gaming giant, Malaysia’s Genting bhd, has enough financial muscle to offer a premium for Echo and shut down Crown’s efforts.
“Our analysis suggests that Genting Singapore could comfortably pay US$6.23-$6.75 a share, a 35 percent-50 percent premium to Echo’s current share price, and see the acquisition as earnings per share-accretive,” Pinge says. Those numbers give Echo a market cap of US$4.7 billion.
And Pinge says it doesn’t make as much sense for Crown to buy the entire company, suggesting that it would be dilutive for Crown shareholders. In the meantime, Packer is trying to convince NSW lawmakers to approve another Sydney casino on the other side of Darling Harbor. The only problem is that Echo has had a monopoly position on casino gaming in Sydney for 20 years.
Macquarie’s analysis comes on the heels of a Genting Singapore announcement that a bond sale will be launched designed for small investors, with subscriptions starting at US$5,000 and available in lots of $1,000 above that. The company hopes to raise $500 million from the offering, company officials said. Genting raised $1.8 billion in March from a sale that started at a base subscription price of $250,000.
Echo also owns the Jupiters Casino Resort on the Gold Coast in Queensland, as well as casinos in Brisbane and Townsville.
Pinge says the acquisition would make sense because Genting has long eyed Australia, and because the Star has not yet penetrated the VIP market in Asia where Genting is a major player. The Star is now a quality property, having just completed nearly a $1 billion makeover.
Genting, meanwhile, was frustrated recently when lawmakers in Florida tabled a gaming expansion bill that would have created three integrated resorts in South Florida. Genting had purchased land in Miami and announced plans for a $3 billion resort prior to the end of the inactive legislative session.
Pressure is also on Genting Singapore because of increased competition in Singapore from rival Marina Bay Sands and slowing overall growth in that island nation. Share prices are down 25 percent from the 2011 peak and investors are getting anxious for some positive news.
Meanwhile, in more bad news for the Star, gaming industry executive Mark Brown, a well-known veteran of Donald Trump’s and Sheldon Adelson’s casinos, has been denied a license to work at Sydney’s Star Casino as international marketing manager.
New South Wales’ Independent Liquor and Gaming Authority refused to grant the special license required for Brown to hold a senior position with the casino.
Larry Mullin, CEO of Star’s parent company Echo Entertainment and a Brown protégé, said he did not know why the license was denied.
