Mayne: dissecting the spin in Packer's war on Star
James Packer’s expensive campaign to discredit Echo Entertainment Group chairman John Story continues afoot at the same time as the casino billionaire’s own investment record has again come into sharp focus after the latest disaster at Network Ten.
James Packer’s expensive campaign to discredit Echo Entertainment Group chairman John Story continues afoot, at the same time as the casino billionaire’s own investment record has again come into sharp focus after the latest disaster at Network Ten.
Today’s latest full-page Crown ads in The Australian Financial Review and TheAustralian focus on Story’s record as chairman of Suncorp and include the following:
“As chairman of Suncorp in 2006, Mr Story rejected an offer of $20 per share from Westpac. Mr Story then backed a $7.9 billion bid for Promina, which was a factor in driving Suncorp’s share price down to $4.55 at one point. In February 2009, Suncorp embarked on a rescue capital raising at $4.50 a share, diluting shareholders. Even today Suncorp’s share price is still under $8.”
Packer, under the guidance of Karl Bitar, has been serving up a classic concoction of spin during this highly personalised campaign.
For starters, it should be noted that Story was first appointed to the Metway Bank board in 1995 when its shares were trading below $4. In 1996, he helped engineer a successful three-way merger with the state government-owned QIDC and Suncorp.
Given the very healthy dividend flow over the years, long-term shareholders are well in front from their Story experience, especially if they supported the $1.05 billion capital raising at $4.50 during the depths of the GFC when every Australian bank was calling on shareholders.
And who is Packer to talk about companies diluting shareholders during the GFC? Has he forgotten Crown’s selective $300 million placement at just $4.95-a-share in December 2008? What about Seek’s dilutive $100 million placement at just $2.60 a share in 2009? You were a director, James!
There is also a problem with Packer going public with this claimed $20-a-share Westpac bid for Suncorp. Unfortunately, neither party has ever publicly discussed this. Was it highly conditional? Was it all scrip? Is James Packer peddling rumours?
One thing we do know is that Crown’s predecessor company, PBL, stupidly sold its 10% stake in Westpac to Lend Lease in the mid-1990s. The missed profits from that move are well north of $1 billion.
And speaking of unconfirmed rumours, didn’t PBL knock back an offer from Telstra at close to $20-a-share during the dotcom boom?
The most laughable element of Packer’s attack on Story for poor performance and discounted capital raisings is that it coincides with Packer backing a $200 million “rescue capital raising” for Ten Network Holdings at the rock bottom price of just 51 cents a share.
Packer personally ploughed $250 million into an 18% stake in Ten at $1.50 a share in October 2010. He did manage to offload half to his One.Tel mate Lachlan Murdoch at $1.43 a share, but has since sat back and watched Lachlan, first as acting-CEO and then as Ten’s non-executive chairman, thoroughly mismanage the joint.
Having caused News Corp and PBL to drop close to $1 billion on One.Tel, the dynamic duo are now down another $130 million on Ten and will have to write out cheques for $18 million each just to retain their respective 9% stakes.
Bu wait, there’s more! Another misleading element of the Packer campaign relates to this line:
“In 2005 normalised EBITDA from Echo’s casinos exceeded Crown’s casinos. Now Crown’s casinos generate approximately $300 million more.”
Of course, Crown’s earnings should have risen after it splashed more than $2.5 billion on new hotels and redevelopment at Crown and Burswood. The real measure should be return on investment.
Echo’s earnings are picking up as well as it ramps up the relaunch of The Star in Sydney following a $900 million revamp, which has only just being completed.
Packer also needs to be careful with all this gloating about how profitable his casinos are, how he keeps the politicians and regulators in line through “competent management of regulatory risk and relationships”.
Crown cops the biggest single rate bill from the City of Melbourne and the cheeky Sydney-based billionaire is apparently still challenging his 2010 rate assessment.
The Melbourne Times, a Fairfax free sheet, revealed this week there will be a motion from Cr Brian Shanahan, supported by Cr Jackie Watts, at the June council meeting for Melbourne to follow the lead of other Victorian councils and introduce double rates on pokies venues. If such a move gets up, it will instantly wipe more than $20 million off the value of Crown. It will be interesting to see if Packer’s “competent management” of “relevant government authorities” extends to leaning on lord mayor Robert Doyle to use his numbers to oppose this move.
The two swing votes on the proposal to double Crown’s rates may well be Greens councillor Cathy Oke and Labor’s Jennifer Kanis, who are contesting the upcoming byelection for the state seat of Melbourne on July 21.
It will also be interesting to see if the Baillieu government breaks its pre-election promise and legislates to prevent councils from imposing double rates on pokies venues. Any move against the all-powerful Crown may bring this to a head, especially seeing as Packer’s controversial nominee for the Echo board, Jeff Kennett, is very tight with Ted Baillieu.
*Disclosure: Stephen Mayne is a declared candidate for the Melbourne byelection and the forthcoming City of Melbourne