Genting Singapore has had no shortage of funds recently, having just raised over $1.8 billion in the past two months. With such a deep well of moolah to tap into, rumors are floating around that the company is looking to make a bid for Echo Entertainment totalling $4.5 billion AUD, or about $4.7 billion in greenbacks.
The mention of Genting Singapore as a potential suitor for Echo stems from the former’s financial flexibility to pay a decent premium for the struggling Australian entertainment company, one that has been in limbo since being demerged from Tabcorp a year ago.
According to Macquarie analyst, Gary Pinge, Genting Singapore could make a push to purchase Echo in light of its plans to invest proceeds from their bond issues to expand the company’s gaming and hospitality business by exploring opportunities that open up in the Asia-Pacific region.
Apparently, one of these “opportunities” is the acquisition of Echo Entertainment, which would provide Genting significant advantages to further expand its influence in a country that its has long attempted to gain gambling licenses on. Echo, which owns the Star Casino in Sydney, Jupiters in the Gold Coast, as well as other casinos in Townsville and Brisbane, could also be the bridge that Genting Singapore can use to set foot on and integrate themselves to a huge market – Australia! – one that’s within spitting distance to their main operations in Singapore and Malaysia.
“Our analysis suggests that Genting Singapore could comfortably pay A$6.00-A$6.50 a share, a 35-50% premium to Echo’s current share price, and see the acquisition as earnings per share-accretive,” Pinge said, before estimating the upper value of Echo to be a $4.5 billion AUD.
Echo Entertainment currently has a reasonably open share register with its investors, with the biggest shareholder being Crown chief and Australian gaming and media tycoon James Packer. Packer currently has a 10% stake on the company, the current ceiling imposed by Queensland and New South Wales regulators, after recently doubling it last January at a cost of around $257m. Incidentally, Packer is also in the process of seeking seeking regulatory approval to increase Crown’s stake to 20%.
Despite Packer’s best-laid plans of owning a bigger piece of the Echo pie, Pinge argues that a full acquisition by Crown wouldn’t make a whole lot of business sense as it would only stretch its balance sheet while also tying up a huge portion of the company’s capital into the purchase.
That leaves Genting Singapore, who, we presume, must be licking their chops at the opportunity of striking a deal on Echo Entertainment. After all, they have a healthy balance sheet and they seem to have no problems raising money from their bond issues. In the event they do acquire Echo Entertainment, Genting Singapore could potentially invite their already significant VIP clientele to, shall we say, “spread their wings”, and embrace Echo the same way they have done to Genting.