Shares in Crown Resorts jumped sharply yesterday after the casinos operator announcement late Wednesday that would spin off its troubled Macau investment (and other international assets) as part of efforts to realise the value of the group’s casinos in Melbourne, Perth and eventually Sydney.
Shares in Crown were 13.1%, higher at $12.73. It rose as high as $12.98, the highest the shares have been since last August.
The shares eased in afternoon trading as the wider market retreated into negative territory, and as investors realised any split for Crown could take nine months or more and a lot can happen in that time.
Crown revealed plans to demerge its international investments and is considering at the same time creating a new property trust for its Melbourne and Perth hotels, allowing it to focus on its Australian casinos, high-end London casino and online gambling operations.
Driving the attempts to boost Crown’s market value has been a feeling it has not been doing as well as rivals.
In the last two years The Star Entertainment Group’s share price has soared by 101% while NZ-based Sky City Entertainment shares were up 18%.
Crown, though, has seen its share price fall by a quarter as investors have increasingly focused on the slide in gaming revenues in Macau and the negative impact that has had on the performance of Melco Crown (Crown and James Packer’s big Asian push years ago) in terms of revenue, profits and the share price.
Late last year James Packer talked about taking Crown private but reportedly couldn’t find partners to do a deal satisfactory to him. Then in May Crown cut its stake in Melco Crown from 34% to 27% to try to weaken the bond to the Macau-based market.
That’s because of the strong correlation between the performance of Melco Crown shares and crown resorts shares – put by some analysts at 90% (meaning for every $1 of rise or fall Crown shares will move the same way by around 90 cents.
That in turn led to a growing underperformance by Crown shares and rising angst by non-James Packer shareholders about this kink because most of the share price movement has been down in the past two years.
So to further lessen the link to Macau, Crown is looking at demerging some of its international investments – ranging from stakes in casino companies or casinos in Macau, Las Vegas, the Philippines and London as well as a stake in the Nobu restaurant chain – into creating a separately listed holding company.
The other option being explored is a potential float of a 49% stake in a property trust that would own Crown Resorts’ Australian hotels (excluding Crown Towers Melbourne). Crown Resorts would retain a 51% stake in that new company.
“The proposed demerger reflects the different nature of Crown Resorts’ controlled Australian operating assets from its international investments. It will provide investors with greater investment choice and transparency on the underlying quality of all Crown Resorts’ assets,” Crown Resorts chair Robert Rankin said in Wednesday’s statement.
In other words, Crown wants investors to focus more on the casino operations in Australia and not the offshore assets, the involvement in the restaurant chain Nobu ( which apparently has concerned some big investors in the company) and especially the millstone that Melco Crown has become.
It is actually a rejection of the original idea for Crown Resorts to be a big conglomeration of local and international casino and entertainment assets. But no more.
