Genting Singapore Takes Stake In Australia's Echo
06/08/2012| 03:34am US/Eastern
-- Genting Singapore takes stake in Echo
-- Analysts suggest could be precursor to takeover
-- Echo chairman John Story resigns after campaign to remove him
(Recasts 1st paragraph, adds share price reaction in 4th paragraph, analyst comments from 7th paragraph, Crown comments in 13th and 14th paragraphs)
By Gavin Lower
MELBOURNE--Singapore-listed casino company Genting Singapore PLC (G13.SG) has taken a stake in Australian casino firm Echo Entertainment Group Ltd. (>> Echo Entertainment Group Ltd), prompting speculation Friday it could be set to launch a takeover bid.
Any bid would set up a battle with Echo's largest shareholder, rival casino company Crown Ltd. (>> Crown Limited) which has a 10% interest in Echo, the maximum allowed by Echo's constitution, and has applied to regulators to be allowed to increase its stake.
The speculation came as Echo's chairman, John Story, quit the board after the company conceded that a campaign by Crown to oust Mr. Story, which claimed that Echo's casinos had underperformed under him, was damaging the company.
Echo's shares closed 4.4% higher Friday, at A$4.49, after Genting Singapore's stake was revealed. Australia's benchmark S&P/ASX 200 closed down 1.1%.
A spokeswoman for Genting Singapore declined to specify the size of the stake it had or disclose when it was acquired, but the Australian newspaper reported on its website that Genting Singapore had acquired 4.9% of the company.
Genting Singapore owns Singapore's Resort World Sentosa and has plenty of firepower after raising over 1.8 billion Singapore dollars earlier this year, saying in April that it had no immediate plans for investments but would look at new projects and acquisitions.
Analysts at Macquarie said Genting Singapore's move on Echo could be a precursor to a takeover, which made strategic and financial sense, especially when considering the big spending VIP market.
"We believe that Australia is a market that has not well penetrated the Asian VIP market and this could present Genting Singapore with substantial revenue synergies given its extensive database of VIP clients regionally," they said.
The analysts said Genting Singapore could pay up to A$6.50 a share for the company, valuing it at up to 4.47 billion Australian dollars (US$4.40 billion), and still see the acquisition being earnings and return accretive.
Another analyst, Ben Brownette from Commonwealth Bank of Australia, told Dow Jones Newswires that while a takeover could make sense based on the VIP operations, questions remained whether regulators would lift the 10% ownership cap on Echo for Genting Singapore.
Echo owns Sydney's The Star casino and has casinos in Queensland state, while Crown owns Melbourne's Crown casino and Perth's Burswood casino.
Echo's chairman had faced a resolution from Crown to be dropped from the board, which was due to be voted on at an extraordinary general meeting on July 20 until the board advised him against contesting the resolution.
Crown said in a statement that subject to further discussions with Echo it no longer intended to pursue the EGM.
"Our shareholding in Echo is a material investment for Crown and we look forward to having discussions with Echo and exploring opportunities to work together to create value for all shareholders," it said.
A spokesman for Echo was unable to be reached for comment.
Echo said in its statement that Mr. Story believed that the resolution to remove him should have been determined by all shareholders at a vote, but accepted the board's view.
Mr. Story's position came under intense pressure last month when Crown called for the EGM and Mr. Story's removal and followed up with an advertising campaign saying the company's casinos had underperformed under Mr. Story's chairmanship.
Crown's moves have been widely seen as key to Chairman James Packer's plans to build a new hotel and casino at Sydney, the capital of New South Wales state. Echo holds an exclusive licence to operate casinos in New South Wales until 2019.
Crown, which has operations in Macau through its Melco Crown joint venture with Melco International Development Ltd., is also seeking to have former Victoria state premier Jeff Kennett appointed to Echo's board.
Mr. Story said in a statement last week that Crown's moves were a desire to gain control of Echo's licences without paying a premium to shareholders.
Echo said it has appointed John O'Neill as acting chairman.
--Chun Han Wong in Singapore contributed to this article.
Write to Gavin Lower at firstname.lastname@example.org