James Packer might have just missed out on a cool $880 million in cash, but as the billionaire sits at home in Aspen this afternoon, he’s unlikely to be smarting too much.
Yes he will be feeling for his good friend and “brother” Lawrence Ho who is under siege battling the coronavirus epidemic, a Japanese bribery investigation and what Ho’s Melco Group clearly perceives is a heavy-handed NSW gaming regulator.
But Packer would be relieved he no longer has any assets in the Chinese gaming mecca of Macau, where some estimates suggest the operators will lose $2.5 billion over the 15-day shutdown of the casino industry there following the coronavirus outbreak.
All the Macau operators including Melco are set to post losses for the month of February, but there are concerns the shutdown could extend for many more weeks or months, which could have far-reaching implications for all the players in the market.
So it was hardly surprising when Melco said late on Thursday that it would not pursue its plans to increase its stake in Packer’s Crown Resorts to 19.9 per cent, a transaction which is subject to an inquiry by the NSW gaming regulator, the Independent Liquor and Gaming Authority, due to begin later this month.
It has also scrapped plans to seek a board seat.
Melco’s pulling out of the deal is understood not to have happened off the cuff and had been under consideration since last weekend.
Of course many will see coronavirus as a smokescreen to give Melco the opportunity to abandon its Australian expansion ambitions, given it is apparent Lawrence Ho’s group has already got more than it bargained for in the probity review process.
On Thursday Melco launched a bold legal bid to prevent the NSW inquiry from forcing witnesses to hand over privileged evidence.
The question now is how the ILGA inquiry proceeds and how much will Melco co-operate. Will Lawrence Ho still be asked to appear?
Will the Hong Kong-based group still be happy to go through the probity process to secure a star of approval that could assist its international ambitions in the future, especially in Japan?
Five rounds of hearings have been scheduled, likely to last about two weeks each, starting in a fortnight’s time.
Several of those rounds will consider broader issues for the casino industry and the murky operations of junket operators, whose links to organised crime - and Crown’s involvement with them - were highlighted in a sensational series of media reports last year.
Only one of the inquiry rounds is considering Packer’s sale of his stake in Crown to Melco and the latter’s links to Lawrence Ho’s father Stanley, which appears somewhat redundant now given Melco’s move and the likelihood it will withdraw its application for approval to move beyond its 9.9 per cent stake in the Australian casino group.
It remains to be seen if ILGA still might seek to reverse the sale of the first tranche to Melco by Packer if it finds Ho or Crown is not suitable to hold a licence for the $2.4bn Crown Sydney development.
But such an outcome appears unlikely given Hong Kong leisure conglomerate Chow Tai Fook and developers Far East Consortium hold just under 10 per cent of Crown’s rival The Star.
The Sydney-based group also has shareholder caps in place to prevent any investor buying more than 10 per cent of the company without going through the probity process.
Of course there is also nothing to stop Melco selling out of Crown completely if it needs cash, especially if the coronavirus epidemic starts to weigh heavily upon its balance sheet.
Which could be good news for Packer, who now retains a 36 per cent share in Crown following Thursday night’s move by Melco.
And even if Ho remains on the Crown share register, other international players keen on looking at a potential takeover of Crown would likely now be more interested given his interest is stuck at less than 10 per cent.
They would also know there is plenty of time to move given the length of time to secure probity approvals and the fact Crown is locked in a holding pattern for the time being with the promise of its Barangaroo project to come on line next year.
Crown held merger talks with United States casino group Wynn Resorts last year, when Wynn was prepared to value Crown at $14.75 per share. Its shares are now trading at $11.62.
Crown of course will also suffer from the coronavirus epidemic and its high rollers business is already reeling from the various inquiries underway into the company’s operations, including by Victorian gaming regulators and the Commonwealth Australian Criminal Intelligence Commission.
But it is a business Packer knows can produce $400 million of dividends each year, even without its high rollers business firing.
“Crown is my great love. I’m not sure it’s the best business in the world, but it’s my great love,” he told Channel 7 in January when he came to Australia for a flying visit.
At the time Packer told me his life was in a “holding” pattern until the Crown Sydney project opens fully next year and while the various inquiries take their course.
But despite the uncertainty of the coming months, Ho’s move overnight won’t do anything to detract from his improving mental state after the horrors of recent years.
Damon Kitney’s biography of James Packer, “The Price of Fortune”, is now available in paperback
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