James Packer's Crown Limited (ASX: CWN) announced today that it has amended its application to the NSW Independent Liquor and Gaming Authority and the Queensland Office of Liquor and Gaming Regulation, to acquire up to 25% of the shares in Echo Entertainment Group Ltd (ASX: EGP). Crown has to apply to both regulators, as Echo owns two casinos in Queensland and the Star Casino in NSW.
Originally, Crown had requested approval to acquire up to 20% of Echo, up from its current shareholding of 10%.
Crown's motives: Full takeover or just influence the board?
Why take over the whole company, when all James Packer may want to do is influence the board to do what he wants? It's certainly far cheaper on two points. He can acquire shares on market, without having to offer a takeover premium, and he doesn't have to buy all of Echo's shares, or take on the company's debts.
A part-ownership is also likely less complex than running a full-blown takeover, especially if he doesn't want some of the company's other assets.
So what would Packer do with Echo?
Likely next step could be to push for a second casino licence at the new Barangaroo development on Sydney's foreshore – although it's unlikely the government and regulators would go for that. Currently, each of Australia's major cities has just one casino. It might create a precedent to allow two casinos in Sydney – plus they might be competing with each other.
The other option is to be able to advertise Echo's Star Casino to Chinese and Asian gamblers as an alternative destination to Macau. Packer could also agitate for Echo to sell off some of its other assets. The Sydney Star casino appears to be the prize he's after.
The competition
Just yesterday, Perpetual Limited (ASX: PPT) was granted approval to increase its maximum stake in Echo to 15%. Maybe Perpetual is just keeping that approval handy, should a takeover war erupt over Echo between Crown and Malaysia's Genting.
Perpetual reduced its stake in Echo from 8% to 5.2% just last month.
Genting owns just under 10% of Echo, and has also applied to the regulators to raise its stake above 10%. Genting's motive is unknown, but the company has shown in the past that it is happy owning parts of businesses and may just push for Echo to sell off its Queensland casinos.
Packer's next target?
Perhaps interestingly, Packer hasn't yet expressed interest in another company with Australian casinos. SKYCITY Entertainment Group Limited (ASX: SKC) which owns casinos in Darwin and Adelaide as well as New Zealand. Perhaps Darwin and Adelaide casinos are too small, or unattractive to Asian gamblers?
The Foolish bottom line
Interesting times lie ahead for Echo and Crown shareholders. A full-blown takeover bid appears to be unlikely. For those investors who might want to invest in Echo on the chance of a takeover, you only have to look at the withdrawn takeover bid for David Jones Limited (ASX: DJS), and the subsequent fall in its share price, to see what risks you are taking.
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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
