Genting may offer us$ 4.7 billion for Echo Entertainment

Casino operator Genting Singapore has plenty of chips to play after raising over us$ 1.8 billion since February. That’s led to speculation an up to us$ 4.7 billion bid for ASX-listed Echo Entertainment may be in the cards.

Echo, which owns the just revamped The Star casino in Sydney, is widely viewed as a sitting duck since its was spun out of Tabcorp last year. It has a reasonably open share register, with Australian gaming and media tycoon James Packer its biggest holder with a 10% stake.

Although Packer’s investment in February sparked a sharp rally in Echo’s shares, Macquarie analyst Gary Pinge reckons Genting Singapore, a subsidiary of Malaysian Genting, could still afford to pay a decent premium for the company, which also owns Jupiters on Australian Gold Coast and casinos in Brisbane and Townsville.

“Our analysis suggests that Genting Singapore could comfortably pay us$ 6.23-us$ 6.75 a share, a 35-50% premium to Echo’s current share price, and see the acquisition as earnings per share-accretive,” Pinge says. At the upper end, this would value Echo at us$ 4.64 billion.

Packer’s Crown has indicated it’s seeking regulatory approval to increase its stake in Echo to 20%. However, Pinge says a full acquisition would be EPS-dilutive for Crown in the near-term and stretch its balance sheet. Mr. Packer is separately trying to convince lawmakers to allow another Sydney casino development and a go-ahead would tie up large amounts of his capital.

Macquarie’s analysis comes after Genting Singapore’s CFO said Monday it plans to invest proceeds from bond issues to expand its gaming and hospitality business through fresh projects and acquisitions, and is exploring opportunities in Asia.

The company announced a bond issue worth up to us$ 557 million this week after raising us$ 1.43 billion from a bond issue in February. Both fundraisings happened despite the company having a healthy balance sheet.

Macquarie says an acquisition of Echo would make strategic sense as its casinos are in Australian cities where the Genting Group has attempted to win licenses previously. It would also help Genting Singapore build a regional footprint with access to gateway city Sydney, which hasn’t effectively penetrated the Asian VIP gaming market.

Crown, owner of the Crown casino in Melbourne, accounts for about 80% of Australia’s VIP market. By acquiring Echo, Genting Singapore could cross-sell Echo’s properties to its existing VIP customer base, especially given The Star has just completed an us$ 903.4 million refurbishment.