Billionaire James Packer has decided to sell nearly half of his stake in Crown Resorts (ASX: CWN) for $1.76 billion to Melco Resorts and Entertainment, a Hong Kong-based entertainment company. This company runs venues in Macau and once had a joint-venture casino with Crown in the highly populated Chinese gambling hub.
Mr Packer’s private investment company, Consolidated Press Holdings, confirmed on Thursday night it had sold 19.99% of its shareholding in Crown Resorts to Melco Resorts and Entertainment. The aggregate purchase price of $1.76 billion implies an equivalent share price of $13, which is regarded as a fair price. In the proposed deal with Wynn Resorts, however, the implied share price was at $14.75.
James Packer currently holds 46 percent stake of Crown Resorts, once this deal is completed, Mr Packer will remain interests of around a quarter in Crown, which roughly equates to $2.3 billion.
Mr Packer commented on this sale as a partnership with Melco and stressed he was still vitally interested in Crown’s success as a world-class resort and gaming business. He said in the announcement, “Crown has been a massive part of my life for the last 20 years and that absolutely remains the case today — my continuing Crown shareholding represents my single largest investment,”
Controversies on Barangaroo pledge
Melco Resorts and Entertainment is run by Lawrence Ho, son of the gambling tycoon Stanley Ho, who established his gambling empire in Macau. Mr Ho was confident in Crown’s Barangaroo development in Sydney, he said “Crown’s resorts in Perth and Melbourne are world-class entertainment destinations and I believe that Crown Sydney, much like Melco’s Morpheus property, will create an architectural icon for the city, the country and the world,” Mr Ho also signalled Melco would be willing to increase its stake in Crown.
Source: Australian Gambling
However, Crown Resorts promised in 2014 it would prevent associations with Stanley Ho as a condition to get the license to develop the Barangaroo complex. Any material deals between Crown and Stanley Ho or his associates are also not permitted. Thus, Stanley Ho can be prevented from being involved with Crown Resorts. Stanley Ho has faced allegations of involvement of organised crimes which have long troubled gambling regulators in other jurisdictions.
According to Crown, Lawrence Ho’s business dealings are independent of his father’s interests and Lawrence has passed probity screens from regulators without an issue.
Melco had cooperated with Crown in a form of Joint Venture for 12 years ending in 2016, shortly after 18 employees of Crown Resorts including three top Australian executives detained in China.
Exit the Gambling Business
Packer has succeeded in cleaning up most of the debt mess left in Crown from a string of troubled investments. Given he is no longer under financial pressure, it may be that he has determined that the casino business in Australia is in structural decline.
The last few years have seen Crown’ business forced to deal with plunging profits, business expansion woes and the arrest of 18 of its employees in China for the illegal promotion of gambling.
Source: Financial Times
James Packer made a decision in his mind that Crown is structurally challenged. All the money that was flowing out of China several years ago has gone and the headwinds rising in the gaming sector here are difficult with the local economy struggling.
This April, Wynn Resort has ended all talks with Crown Resorts with regarding the $10 billion takeover, following the premature disclosure of preliminary discussions, with the alleged “premature” spilling of the deal sent Crown’s share price surging 20 per cent higher.
As Crown spoiled the deal by pre-emptively spilling the beans, the agreed bid had not been completed on the deal.
After James Packer failed in April to offload his 46 per cent stake in Crown Resorts to Wynn Resorts, he has managed to halve his stake in the gambling giant by selling a 19 per cent stake to his former business partner Lawrence Ho’s Melco.
Another related reason would be Packer’s mental health issues. Mr Packer resigned from the board of Crown in March last year for the reason of suffering public and sustained mental health issues.
“Some people handle pressure well and some don’t. I don’t. I don’t know if that is because I am wired that way,” Mr Packer said. “Or if it is because bad things have actually happened to me. I am tired of being on this rollercoaster. I don’t want to do it anymore. I’m ready to put my hands up for a few years. I really am.”
Melco’s 19.9 percent shareholding is just under the mandatory takeover threshold, which hints that this is the first stage of a takeover. Crown shares begin trading on Friday morning and dropped over 3 percent.
(by Frank Zhang)