Packer dumping Melco Crown, Australia Casinos more important

Australia casino magnate James Packer has had a rough ride lately concerning his interests in China’s gambling mecca of Macau. With several high-ranking employees still embroiled in an investigation by Chinese authorities, Packer has elected to dump his interests in Melco Crown to focus more on his Australia casinos.

Once intent on building an international gambling empire, Packer’s ambitions came to a screeching halt this week when Crown Resorts, for which he controls a majority stake, announced an agreement to sell half of its shares in the Macau casino property for $1.6 billion. That 27% interest will go to Packer’s Hong Kong business partner, Lawrence Ho.

That still leaves the Australia casino tycoon with a quarter control of Melco Crown Entertainment, but that should change soon. Crown Resorts also confirmed it’s “exploring potential options” to rid itself of all remaining shares in the Macau casino.

More evidence that Packer is retreating from the international market came from a subsequent announcement. Crown said that, “at this time”, it won’t proceed with a proposal to spend $2 billion on the Alon casino project in Las Vegas, which was already delayed after its initial proposal in 2015, and was expected to open by 2018.

Crown’s Australia Casinos Dominate

Without significant Macau or Las Vegas ventures on the company’s exorbitant menu, Crown’s interests will be almost entirely based in Australia. It’s hometown casinos include Crown Perth, Crown Melbourne, and an ongoing project to complete Crown Sydney in Barangaroo.

Once the Melco shares are completely offloaded, Crown will only have minimal interest outside of Australia. These include a 50% stake in London’s Crown Aspinall’s casino, and 24.5% interest in Cannery Casino Resorts, which operates two gaming hotels in Nevada, USA.

Crown Sydney No Longer Valuable?

Packer’s deep investments in the upcoming Barangaroo casino have come under heavy criticism as well.

First proposed in February of 2012, it wasn’t until November 2013 that Crown Resorts finally received approval from the government to build the new Australia casino resort. Over the next two years, numerous delays and community requests to alter the plans arose. Construction finally began on the property in October 2016.

Packer made no secret of the fact that Crown Sydney was being developed to lure Chinese high-rollers to the property. It was meant to offset the losses of their Macau casino interests, following the Chinese government’s crackdown on corruption in gambling.

Considering the current circumstances surrounding Macau and Australia casinos, analysts are wondering if Packer’s heavy investments in the Barangaroo location will suffer the same lackluster fate as Melco Crown.

Best Strategy for Packer

On the bright side, if Crown plays its cards right, the Melco sale could be a big boon for Packer’s Australia casinos. With company interests waning and enormous debt to consider, shares are fluctuating perilously, but using the money from its Melco sale wisely could change everything.

Theo Mass of Arnhem Investment Management suggested Packer use half of the $1.6 billion from the dumping of Melco shares to pay down $800 million in debt, and return the other half to shareholders through share buybacks and a special dividend.

“It’s all about risk management,” Mass explained.

If Packer follows his advice, Mass said, “You’re now looking at a much more predictable business with a much stronger balance sheet.”