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James Packer’s gamble in Crown Resorts’ international spin-off

Australian casino firm Crown Resorts plans to spin-off its international investments, including its underperforming AUD$2.7 billion ($2 billion) interests in the Chinese gaming capital Macau, into a separate listed company.
City of Dreams Macau

Australian casino firm Crown Resorts plans to spin-off its international investments, including its underperforming AUD$2.7 billion ($2 billion) interests in the Chinese gaming capital Macau, into a separate listed company.

Former chairman James Packer, son of the late media mogul Kerry Packer, remains the majority controller of Crown Resorts with a 53% stake.

Packer and the board and management for Melco Crown Entertainment (MCE) within the new separate holding company, would control luxury resorts including: City of Dreams (pictured) and Altira in Macau; plus a network of niche gaming facilities in the Mocha Clubs business; a 60% stake in Studio City; an entertainment, retail and gaming resort in Cotai; as well as a 73% interest in the operator of City of Dreams Manila.

Crown wants to bundle MCE with its other international assets into the new off-shoot entity:

Crown’s investment in the 14ha vacant Alon casino site on the Las Vegas Strip, with project design and construction contracts pending after planning approval lodged, to open in 2018.

Crown’s 20% holding in Nobu, which operates 13 owned Japanese restaurants in the United States, London and Tokyo, 17 international licenced restaurants and two hotels in Las Vegas and Manila.

Crown’s 50% holding in Aspers, which runs four casinos in the United Kingdom – London, Milton Keynes, Northampton, and Newcastle.

Crown’s investment in Caesars Entertainment Corporation.

The distancing of the Macau assets is likely to please shareholders eyeing their dividends. Crown’s share prices fell over recent months, dragged down by more than two-years of casino underperformance in Macau, in turn prompted by economic cooling in China and a corruption crackdown by Beijing.

Crown reported a net profit of AUD$525.5 million ($388 million) for the year ended 30 June 2015, down 17.9%, and blamed “weak market conditions in Macau” in its annual report.

However, Crown shares shot up 13% equivalent to more than AUD$1 billion ($739 million) on Thursday, the day after the demerger announcement.

With the weight of underperforming Macau assets off its shoulders, Crown intends to focus on its reliable wholly owned casinos in Melbourne, Perth, Sydney, and London in addition to wagering and online investments.

Crown plans to build and open in 2021 a AUD£2 billion ($1.5 billion) six-star hotel and casino in the redeveloped central Sydney precinct of Barangaroo. The company also wants to build a 400 room six-star hotel as part of a new tower development next to Crown Melbourne.

The Sydney Morning Herald reported Crown may look to raise equity from shareholders to fund its expansion in Australia, but the move would risk their dividend yield of more than 5%.

While the proposed move is a split, not a sale, it would be the second demerger of Packer’s listed company operations in a decade. The split this week was discussed by Packer seven months ago, amid speculation Packer was determined to privatise Crown and attract buyers, which may still be his end game.

The grandson of Sir Frank Packer inherited control of the family business, Consolidated Press Holdings, upon his father’s death in 2005 and expanded Consolidated’s portfolio away from its traditional media interests to include gaming. Crown Resorts was established in 2007.

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