Australian Crown could turn its sights to Tabcorp

Crown shares hit a 7-week high after it exited a purchasing agreement with Cannery Casino Resorts last week as casinos in Nevada struggle amid skyrocketing unemployment and house foreclosures.

Crown could turn its sights to Tabcorp, prizing the Star City casino in Sydney, which is about to undergo a us$ 312.5 million facelift, analysts said. That could see Crown team up with lottery operator Tatts Group, they added.

"Because Crown successfully extracted itself from Cannery, it’s now got a balance sheet. People are doing the maths and ruminations on where it could go, and the standard way of splitting it all up is that Crown gets Star City (casino), Tatts takes some of the wagering and perhaps someone else takes some of the Queensland casinos," said CommSec gaming analyst Craig Shepherd.

"The difficulty would be getting across the gulf of multiple (price) expectations. The gap would be very large. I’m sure the buyers wouldn’t be looking to pay much and I’m sure Tabcorp would be looking to take a lot," he said. Analysts say any buyer would have to pay more than Tabcorp’s current us$ 4.16 per share, less than half their worth a year ago.

Shares in both Tatts and Tabcorp plummeted after the Victoria state government unexpectedly decided almost a year ago against renewing slot machine licenses after 2012. Australia is home to around a fifth of the world’s slot machines and the gaming business accounts for more than 40 % of those companies’ revenues.

Tatts and Tabcorp are now scrambling to make up that lost income in an arena of precious few gaming assets up for grabs. Tabcorp is plotting a bid for a state lottery license in New South Wales, the Australian Financial Review said on Monday, without naming the source of its information. A Tabcorp spokesman said he could not comment on speculation.

Rival Tatts has already said it would be interested in the license, expected to be sold by the state as it struggles to cover costs as tax income from property sales slumps. The lottery is estimated to be worth around us$ 329 million. Tatts already operates lotteries and could extract cost savings of up to us$ 26.3 million from an acquisition, analysts estimate.

"Tatts already has the systems in place and the know-how, therefore the price Tatts can pay for that business has got to be higher than Tabcorp can pay," said Karara Capital analyst Akshay Chopra, adding that Intralot which operates in Victoria was another potential bidder. A capital raising in January by Tabcorp has raised talk it will join the race.

Meanwhile, New Zealand’s Sky City Entertainment is after Tabcorp’s Queensland assets and managing director Nigel Morrison told investors in New York "we would certainly be looking at one or two of its smaller casinos," adding that the gaming industry could be set for consolidation, according to the Australian Financial Review.

Chopra said Tabcorp would not be a willing seller. "It would only be in a carve-up. Tabcorp is looking to take on more business as they already have license risk," he said.