Genting takes stake in Australia's Echo, sparks takeover talk

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MELBOURNE/SINGAPORE (Global Markets) - Singapore gaming operator Genting (GENS.SI) said on Friday it had taken a stake in Echo Entertainment (EGP.AX), raising the prospect of a battle for control over the $3 billion Australian casino company with billionaire rival James Packer.

Packer, who wants to use Echo's license to build a new casino complex in Sydney to attract more Asian high-rollers, has been agitating for change at Echo after building a 10 percent stake in the company, and on Friday succeeded in ousting the company's chairman.

Analysts speculated that Genting, Southeast Asia's largest gaming group, was preparing for an acquisition, having built up a war chest of S$3.9 billion ($3.1 billion), and said Echo's Sydney casino would be the prize.

Genting, like its rivals such as Las Vegas titans Sands (LVS.N) and MGM Resorts (MGM.N), are racing to dominate the Asian casino world รข€" considered the most fertile ground for gambling with about $45 billion in annual revenue up for grabs.

"I don't think they are going to work with Packer. Echo's main asset is Sydney and there is no reason for either Packer or Genting to want to give up Sydney," said an analyst in Hong King who was not authorized to talk to the media. "Both of them are going to be fighting for Echo's crown jewel," he said.

A Genting spokeswoman declined to comment on whether the company was considering a takeover offer or disclose its stake, but Genting said in a statement the total value of its investment in publicly quoted securities was S$298 million ($234 million). The Australian newspaper said earlier that Genting had built up a 4.9 percent stake in Echo, which runs Sydney's Star casino and Jupiter's on the Gold Coast of Australia.

Echo said separately that its chairman, John Story, has resigned, bowing to a destabilizing campaign run by Packer who owns a rival casino operator and wanted to sack the Echo chairman.

A full takeover would cost more than A$3 billion ($2.96 billion) and both Packer and Genting would face tough regulatory scrutiny.

"At this juncture it does seems like a possibility," Loke Wei Wern, a CIMB Research analyst based in Kuala Lumpur, said of a Genting takeover bid. "They have that war chest and will have to deploy it soon."


Shares in Echo topped the gainers in a broadly weaker S&P/ASX 200 Index .AXJO, rising 4.4 percent to value the company around $3 billion.

But Genting Singapore shares fell 3 percent on concerns the firm could get involved in a costly takeover battle.

Genting Group, whose biggest assets are Malaysia's Genting Highlands casino complex and Singapore's S$6.6 billion Resorts World at Sentosa, also has stakes in Resorts World Manila and several UK casinos.

Genting missed out on a concession in Macau over a decade ago and has been aggressively raising its game across the region, with its parent company planting itself in countries such as the Philippines and Vietnam to help it secure revenues in what are expected to be fast-growing emerging casino markets.

The group is headed by Lim Kok Thay, who is chairman and chief executive of Malaysia's Genting Bhd and executive chairman of Genting Singapore, and knows Australia well.

The Malaysian Genting Group was a founding shareholder in the Burswood casino in Perth, which is now owned by Packer's company.

A source familiar with the situation said the board of Echo had not had any discussions with Genting ahead of the news about its stake.

Packer, who has stakes in casinos in Australia, London and Macau, wants to increase his company Crown Ltd's (CWN.AX) 10 percent stake in Echo and win a board seat. Crown had put forward a resolution to remove Story at a July 20 shareholders meeting.


Echo said in a statement on Friday that Story wanted the shareholders to vote on his position, but accepted the board's view that he should resign.

"The board of Echo has formed the view that the ongoing disruptive campaign concerning the resolution proposed to be put to an Extraordinary General Meeting of Echo for the removal of Mr Story was damaging to the company, and that it was in the best interests of shareholders that Mr Story not contest the resolution," Echo said.

Crown, which had argued that Echo was underperforming under Story's leadership, said in a statement on Friday that it would drop its call for a shareholders meeting.

"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," Packer, Crown's executive chairman, said in the statement.

Echo completed a costly A$870 million refurbishment of its Sydney Star casino last year but has not yet seen a substantial pick-up in revenues, according to analysts.

Crown owns casinos in Melbourne and in Perth, and about a third of Melco Crown Entertainment (6883.HK), which has casinos in Macau. It wants Echo's casino licenses in Sydney and the Gold Coast because they are more likely to attract Asian high-rollers than Melbourne and Perth.

Echo's licenses are "irreplaceable," UBS analyst Sam Theodore said recently, adding that Sydney and the Gold Coast would be especially attractive to international VIP players. ($1 = 1.0063 Australian dollars) ($1 = 1.2754 Singapore dollars)

(Additional reporting by Farah Master in Hong Kong and Charmian Kok in Singapore; Editing by Chris Gallagher)