James Packer’s private company, Consolidated Press Holdings (CPH), has played down Wednesday’s speculation that it was going to team up with private equity and snaffle parts or all of Crown Resorts (CWN).
But enough hints emerged yesterday to suggest that there is some sort of deal is in the offing, perhaps not for all the company, but perhaps Crown’s stake in Melco Crown, according to some brokers.
The reports on Wednesday saw the Crown share price jump 10.5%. Yesterday, in response to a price query from the ASX, Crown said it “was unaware of any proposal for a possible joint bid for Crown which is the subject of media speculation and Crown has not received any such approach from any party”.
That saw the shares slide yesterday to end the day at $11.58, down 1.6%.
CPH is Mr Packer’s private company and holds 53.01% in Crown Resorts. It also played down the speculation, saying “From time to time CPH has confidential discussions with third parties regarding CPH’s investments, including its shareholding in Crown Resorts Limited".
CPH said that if it did intend to pursue a privatisation of Crown, it would deliver a proposal to Crown’s independent directors. But CPH made it clear it has not done so.
Michael Johnston, CPH’s finance director, said the company may continue to have confidential talks with third parties regarding its investments, and that those “should not be taken as any indication that any proposal of the nature that has been the subject of the media speculation will be made by CPH in the future”.
Crown’s biggest problem is the ongoing weakness in gaming revenues in Macau, where it owns 33% of Lawrence Ho’s Melco Crown.
Gaming revenues are down more than 30% this year and no significant improvement is expected until midyear in 2016 as the impact of the Chinese crackdown on corruption eases.
There might be an improvement next year, but that will be from this year’s weak base and revenue growth will remain well below the levels of 2013 and early 2014.
The slowing Chinese economy is also not helping gaming revenues and the expansion to Manila has yet to produce significant returns, and the company has multi-billion dollar ambitions in Las Vegas.
Despite yesterday’s statement, it wouldn’t surprise if a proposal emerges in the next few months once an idea of how Macau revenues have started the year.
The talks, which are believed to have taken place in recent weeks, explored funding options with potential co-investors to buy all or some of Crown Resorts’ assets, according to Fairfax Media.
As part of any deal Crown has mulled a potential spin-out of its property assets to a separate vehicle, to cash in on the real estate value of its casinos in Melbourne and Perth (this is a popular move in the US and UK in recent months).
Deutsche Bank analysts say the near $7 billion cost for Mr Packer and potential partners of buying out the remaining 47% of Crown made a privatisation deal for all of Crown unlikely. To do that would need access to a large source of finance and at the moment that means raising a lot of debt, or raising capital from the market.
Deutsche reckons that CPH may acquire Crown’s 33% stake in Melco Crown despite the slide in gaming revenues. “We believe CPH could acquire Crown’s 34.3 per cent interest in Melco Crown at market (total cost of $4.1bn) in order to make the value in Crown more transparent,” Deutsche analyst Mark Wilson said in a note to clients yesterday.
“Melco Crown is trading at an implied discount of 31 per cent to market value,” Mr Wilson observed.
Fairfax Media said that Crown received a letter from CPH on Thursday which suggests talks have taken place with possible partners without an active proposal being put to the Crown board.
