THE late Kerry Packer liked a punt – and how; the stories are many and varied and all involved rather large sums of money.
In very sharp contrast his son, James, likes the punt-ers. Yes, he plays the odds, but in an absolutely cold and calculating way. Oceans 11, 12 and 13 and other fantasies aside, he knows the house always wins. You don’t bet the house, you own it.
The one thing Packer is
not doing is rolling the dice at his Crown Resorts group. He is embarked on a very calculated play – a form of replay of what he did with the four-generational family media empire in 2006 that dropped a cool $4.5 billion free and clear into his pocket.
There are some critical differences – if, it is important to stress, he does actually go ahead, and indeed go ahead in this, the most obvious way.
The biggest is that it’s less about cashing in a big cheque upfront, and more about capturing hidden value and winning operational and strategic flexibility.
As I wrote in 2006, you only get one Helen Coonan in your lifetime. But boy, she was even better than the “one Alan Bond” if the name’s Packer, James Packer.
Coonan was the communications minister at the time in the Howard government. What she did was to steer the government’s decision to mandate a continuing three FTA-TV network oligopoly; cementing for a while the licences to print money they still had back then.
Packer immediately pounced. He joined with private equity to sell the Packer family’s Nine Network and other assets for the staggering sum of $5.5 billion. In a complex but very clever deal, it dropped $4.5 billion of that back into his pocket
and left him still owning 50 per cent of the network.
This trumped what his father had done in the 1980s when he first sold the Nine Network to his “one Alan Bond” for a then very cool $1 billion. Kerry also sold it all, although he did get to buy it back at a discount.
In 2006 Packer wasn’t the only one to get his “one Helen Coonan”. Kerry Stokes followed within weeks with an identical deal to cash-in while still controlling the Seven Network.
Interestingly, they would go in exactly opposite directions after that.
When the world turned sour after the GFC, Stokes used the opportunity to do what Kerry Packer had done 20 years before: buy his network back at a big discount. Stokes became, as I dubbed him, “Australia’s last media mogul”.
Although Packer initially kept 50 per cent and functional control of Nine, he was totally indifferent to staying in media. Indeed if anything he was actively antipathetic to media.
So when the network needed more cash from his owners, he allowed himself to be watered down and eventually completely out.
He embarked on what would be both a crazy spending binge and a powerful — and expensive — learning curve in global gaming. He tried to go too far, far too quickly; but like a drunk waking on Monday morning and swearing off the booze, he refocused and redisciplined himself.
He developed a two-pronged strategy. The first was building the Crown domestic franchise and dominance, based off Melbourne’s fabulously (profitable) casino and bludgeoning his way into Sydney at Barangaroo.
The second, critically, was the partnership he formed with Lawrence Ho – son of “Mr Hong Kong and Macau” Stanley Ho – to roll into and hopefully over what was becoming Global Gaming Central, Macau.
He had very clearly seen the future and it was casinos filled by thousands of very rich Chinese billionaires and millions of not-so rich Chinese middle-class punter-tourists.
He was riding the China-driven resources boom every much as his billionaire friend “Twiggy” Forrest at Fortescue, and the corporate millionaire employees at BHP Billiton and Rio Tinto –and emerging in 2015 with the same question marks, if probably not yet nearly as potent.
In the same way as what is happening in resources,
his China boom is “taking a pause”. And this opens up a huge opportunity.
All his business interests and personal corporate interest is in his 53 per cent stake in the listed Crown Resorts.
Crown is essentially two businesses – the Australian casinos and the interests in Macau held through the listed joint venture with Ho in Macau.
If you look at what Crown’s stake in that joint venture is worth, you get a figure around $4.5-5 billion. With 730 million or so Crown shares on issue, that translates to around $6-$7 per Crown share.
The Australian casinos generate around $900 million of gross (EBITDA) profits.
Put a broad multiple of say 10 on those – like FTA-TV in 2006, government monopoly or oligopoly mandated – profits and that gives you a value of around $9 billion or around $12 per Crown share.
Add the two together and you get around $18-plus per Crown share. Even after jumping 10 per cent yesterday, Crown was only selling at $11.77.
As they say, do the maths, as Packer and investment banker Matthew Grounds would most certainly have; and you arrive at a plan to take it private with private equity partners just as he/they did with the family media empire in 2006.
This time there wouldn’t be quite as big a multibillion-dollar cheque, but the profit would be in the value realisation.
Although it’s important to make two huge qualifications. These are “back-of-the-envelope” numbers – reality mightn’t be nearly as profitable. It all depends on China. Secondly, “back-of-the-envelope” calculations don’t necessarily lead only to
this sort of deal.
But the basic reality of Packer’s ambitions and Packer’s almost savant-like ability to do the most intricate maths; and punt on it in a way that was completely foreign to his “roll-of-the-dice, flip-of-the-card” father, makes it very live.
Obviously, unlike 2006, Packer wants to stay in the business and in control and the mix of the Australian “grunt” and Asian high-roller businesses and Macau are crucial to his “conquer-the-world” global ambitions.
In general terms the world of 2015 is very different to the crazy hyped-up exuberance of 2006; Crown and the various ponds it swims in, very different to Nine back then.
All this would make it a more conventional deal. More specifically a, say, 50-50 partnership to take Crown private would essentially be his partners buying out the public shareholders.
There would probably be some financial engineering in the execution which would free some cash for Packer, but that would essentially be limited by somewhat more conservative gearing demands now than in 2006, and even more Crown’s growth ambitions.
Funny thing about Packer; he might be indifferent – to owning media; but he sure makes a good job of feeding it.
