Packer’s CPH considered share sale to SunCity, gave confidential forecasts to Melco, inquiry hears

James Packer’s private company considered selling shares to a controversial junket operator and then disclosed Crown’s profit forecasts to the eventual buyer, Melco, before the sale.

A 19.9 per cent stake was eventually sold to Melco for $1.8bn at the end of May. Picture: AFP

James Packer’s private company contemplated selling a strategic shareholding in Crown Resorts to one of its high roller junket operators SunCity, in a deal that would have allowed the controversial Hong Kong group to avoid probity and shareholder approvals.

A public inquiry into Crown was told on Friday that a sale of a 19.9 per cent stake in Crown by Mr Packer’s Consolidated Press Holdings (CPH) to SunCity was examined by CPH executives last year as one of three options for the holding, that also included a full takeover offer for Crown by Lawrence Ho’s Melco Group.

A 19.9 per cent stake was eventually sold to Melco for $1.8bn at the end of May.

The inquiry also heard on Friday that CPH finance director Michael Johnston, who is also a director of Crown, provided details on the casino company’s financial forecasts to Melco prior to the sale agreement but he denied they were price sensitive.

The revelations capped a week of drama at the inquiry being conducted by the NSW Independent Liquor and Gaming Authority, which is considering whether the casino giant and its major shareholder Mr Packer are fit and proper to retain the licence for their Sydney casino which is due to open in mid-December.

Crown chief executive Ken Barton’s admission before the inquiry on Thursday of his lack of knowledge when he was previously chief financial officer of a range of governance and compliance failures at the company prompted inquiry commissioner Patricia Bergin to exclaim they had “reached a debacle level” and were “extraordinarily troubling”.

The inquiry also heard in detail for the first time about the level of financial information being provided to Mr Packer even after he resigned from the boards of Crown and CPH in August last year.

It was revealed Mr Barton would provide the billionaire with almost daily updates and also, upon request, its financial forecasts.

Mr Packer and former Crown executive chairman John Alexander will appear before the inquiry next week, ahead of the entire Crown board of directors including chair Helen Coonan, former advertising king Harold Mitchell and former AFL chief executive Andrew Demetriou taking the stand.

The inquiry on Friday was read the contents of a discussion paper prepared for a potential SunCity transaction with CPH — codenamed Project Rhino — that noted SunCity already had a VIP room at Crown Melbourne.

It also noted SunCity would be able to proceed with the deal without going through the delays of probity and a vote of Crown shareholders because the shares were being sold in a Crown holding company rather than the entity that held Crown’s casino licence.

Asked by Commissioner Bergin if this provided a simple way around a legal restriction that prevents a gaming licensee selling more than 5 per cent of its shares without the buyer needing to get probity approval, Johnston said this could occur if the purchaser was acquiring up to a maximum of 19.9 per cent and did not want board representation.

But Johnston stressed the SunCity share sale option was only contemplated and never formally considered.

“That was used as an example as someone who may have an interest as opposed to a proposal to do it … as opposed to us recommending that for consideration,’’ he said.

Crown has since ceased dealing with SunCity following revelations of its links to organised crime.

Alvin Chau, the chairman of SunCity, was blocked from entering Australia last year due to his suspected links to organised crime and money laundering.

The inquiry has also heard Crown discovered $5.6m in cash stored in a cupboard in the junket operator’s private gaming parlour at Crown Melbourne.

In his evidence before the inquiry the casino’s chief legal officer Joshua Preston said the discovery sent “money-laundering alarms ringing”.

The inquiry has also heard Crown received a due diligence report on Chau in April 2016 that warned the US government considered him to be involved in organised crime.

Another dossier assumed by Crown a month later had warned that he appeared to be a former member of the “14K Triad” in Macau.

Johnston was also questioned about an alleged conflict of interest amid revelations he made suggestions to Barton to improve the financial forecasts of Crown less than a fortnight before Packer agreed to proceed with the Melco share sale.

Packer and CPH are provided with confidential information about Crown’s financial affairs under a special confidential controlling shareholder protocol approved by the Crown board.

Terms of the protocol produced at the inquiry revealed each director and officer of Crown had to act carefully before revealing information to CPH and were required to judge if it was in the best interests of Crown for the information to be disclosed.

CPH also has a separate services agreement with Crown under which it is paid for providing services to Crown, which covers Johnston’s role as a CPH executive and Crown director.

Johnston revealed on Friday that prior to the sale and after the discussion with Barton he provided a disclosure letter to Melco which indicated Crown management’s financial forecasts for 2019 were within 2 per cent of the market consensus and that the 2020 forecasts varied by less than 5 per cent.

But he denied the information was price sensitive because it was largely “consistent with market consensus views”.

“Something (is price sensitive) that if the market became aware of it, it would move the share price,’’ he said.

He also said the forecasts — which were “guidance, not detailed financial information” — were informed by a request he made to Barton on May 21 following a request by Packer earlier that month for Barton to produce a three year financial forecast for Crown to 2022.

Johnston’s email made five suggestions about the forecasts, three of which Barton said — if adopted — “would have resulted in a favourable increase in the financial projections”.

The email was followed by a call with Barton on the evening of May 21 and as a result of the discussions Johnston said there was one modification to the forecast that related to table games revenue in Melbourne.

“Not as much as I was suggesting,’’ he said.

“In the outer years there was a slightly higher assumed growth rate for table games revenue.”

While these numbers were not provided to Melco, Johnston said they were “relevant to giving those estimates”.

He also claimed his discussions with Barton were part of the normal budget process for Crown, which CPH had input into.

“The budgets are put together during May. I would normally comment on them at that time. That is normally how it is done,’’ he said.

Barton was asked by Bergin on Thursday about whether conflict of interest provisions in the services agreement Crown with CPH should have been triggered by the discussion with Johnston.

“If you have a director who is negotiating with a third party to sell a third party shares, you need to know about that to deal with any perceived or actual conflict, do you not?” She asked.

Barton replied: “I agree.”

But Johnston denied there was any conflict or that he should have advised Barton about the impending CPH share sale to Melco before the CFO provided the financial forecasts to Packer.

“I didn’t believe there was a conflict because all of these numbers were consistent with consensus views in the market. This was a downward movement from prior forecasts. There were no changes being proposed for FY19 and FY20. The only changes were being proposed in the out years and they were relatively minor in the out years,’’ Johnston said.

He also said he wasn’t involved with any negotiations on the sale contract with Melco, which were being handled by CPH chief executive Guy Jalland.

“Given I wasn’t inputting to the pricing discussions, it wasn’t (a conflict),’’ he said.

“I didn’t see there being a conflict as I was commenting on this in the same way I would in any budget process.”