Wednesday June 20, 2012
Genting ups stake in Echo Group and is set for battle for Aussie casino operator
By LIZ LEE
Reuters reported that “(Genting) bought 2% of Echo, or 13.8 million shares worth around A$60mil (RM192mil), in a single trade yesterday morning with Malaysian broker CIMB facilitating the deal, according to one of the sources and brokers in Sydney.”
With the recent stake acquisitions, talk is rife that Genting is racing against Echo's biggest shareholder, Crown Ltd, to take over Echo, a hospitality, dining, nightlife and gaming group which operates Sydney's only casino.
It seems Genting has suddenly caught up with Crown, which is controlled by billionaire James Packer.
In February, Crown had sought regulatory permission to increase its 10% stake in Echo.
In the past two weeks, Genting made two stake acquisitions through its regional units.
Genting Hong Kong Ltd announced on Monday that it acquired 19,259,112 shares or 2.8% stake on-market at a total consideration of A$82.55mil (RM264.16mil) on the rationale that “the investment is a good opportunity for the company to diversify its investment portfolio.”
Before that, Genting Singapore Plc bought an unspecified stake which analysts said amounted to 4.9%.
UOB Kay Hian affirmed in its report that the acquisitions suggested the Genting group's interest in a takeover.
“The group's strategy of getting a few listed companies to accumulate shares of investee companies or potential takeover targets is not unfamiliar and has been used when the group started to acquire stakes in UK gaming listed companies,” it stated.
The report added: “Genting would only modestly enhance Echo's bottomline by improving VIP clientele to Echo.”
Echo had, early this week, raised about A$266mil (RM851.2mil) selling new shares to institutional investors to reduce debt and expand its high-roller programme.
While a takeover is much speculated, UOB Kay Hian stated that there were also talks of a compromise situation where “the Genting group would relinquish the race for control over Echo in exchange for a chance to co-participate with Australian rival casino operator Crown's investment in Macau Studio City.”
However, UOB opined that it would be a surprise if the situation materialised as the Macau franchise was perceived as far more valuable than the Australian business.
An analyst from another bank-backed brokerage said the acquisitions reflected the company's expansion plan into new markets.
“All the money is in place. It has been the plan for Genting Singapore and now, I suppose, Genting Hong Kong as well, to expand into new areas.”
However, she opined that whether the acquisitions would lead to the takeover of Echo remained to be seen, as there were no clear indications of that yet.
“If it is a takeover, it's all about the valuation and pricing, given that Australia is a relatively matured market,” she added.
While the market expects a competition between Genting and Crown, the analyst said that “a fight would not be a good thing because it then becomes a bidding war that will push the price up.”
“At this point, it is hard to say there is any impact on the company as it is a small stake. (The company) would say it is purely an investment and it is potentially just that,” she said, adding that it could be Genting's strategy to monitor its competition.