How to get James Packer out of Crown

Now that royal commissioner Ray Finkelstein has made a definitive finding that no shareholder should own more than 5% of Crown Resorts, foreign takeovers and private equity plays are largely off the table and the pressure is on James Packer to sell down his residual 36% stake before the October 2024 deadline.

Legally forcing a billionaire to surrender voting control over a public company is not something that has happened before in Australia, but it is game on for Crown to finally free itself of the Packer family’s influence.

The Packers weren’t directly part of the controversial winning tender for the Crown Melbourne licence beyond their privately held 10% stake in property developer and syndicate sponsor Hudson Conway. However, this was promptly doubled to 20% after the tender was awarded and then their public company PBL took the entire 15%-plus share allocation given to underwriter Ord Minnett when Crown was floated in 1994.

In other words, the Packers have been central to Crown Melbourne from the get-go. After it looked like Crown might go broke following construction blowouts and a string of losses to VIP gamblers, PBL rescued Crown with an all-share offer in 1998 which valued the company at almost $2 billion, including debt.

PBL then bought Perth’s Burswood casino for almost $900 million in 2004, and when Kerry Packer died in late 2005 James had unfettered control over Crown’s Melbourne and Perth casinos. He then decided to sell PBL’s media crown jewels in 2006 to finance a push to become one of the world’s top three global casino moguls, along with Sheldon Adelson and Steve Wynn.

Crown was demerged from the rump of PBL in 2007 and the share price hit a low of just under $5 after the GFC struck in late 2008, and then peaked at more than $16 a share in early 2014, largely courtesy of the $2 billion in clear profits it made building three casinos in Macau in partnership with the Ho family.

But it has been all downhill since May 2014, when Packer got into the notorious Bondi street fight with his best mate David Gyngell, suggesting that something was amiss.

The following year he threatened to kill private equity executive Ben Gray when a $9 billion Crown privatisation deal with TPG fell over, denying him a $1 billion-plus partial payday at more than $15 a share of Crown.

All Packer’s subsequent attempts to hand over control of Crown have failed thus far. His first public effort was in 2019 when the company informed the ASX of a potential $14.75 a share takeover bid from US casino giant Wynn Resorts, which was subsequently withdrawn within 24 hours.

A few weeks later he announced his $1.8 billion deal to sell 20% of Crown to Lawrence Ho’s Melco Entertainment at $13 a share. Only the first 10% completed, delivering Packer a tasty $880 million in cash.

The Melco announcement sparked interest from the NSW regulator but when combined with Crown’s appalling treatment of its jailed Chinese staff, the result was the fateful arrival of whistleblower Jenny Jiang into the arms of Nine’s Nick McKenzie for a full symphony of 60 Minutes and Nine newspaper coverage.

Less than three years later, Packer is a forced seller of his residual 36% and has three years to get below 5%.

So how should this happen?

If Packer won’t just promptly sell to institutions, one option would be for the reconstituted Crown board to take matters into its own hands. Under Australian corporate law, a listed company can place 15% of its issued stock with whoever it likes in any 12 months.

A 15% institutional placement at the current price of $10.30 would raise $900 million and dilute Packer to about 31%.

Given that Crown is capitalisated at $7 billion and has less than $1.5 billion in net debt, such a capital raising could fund an on-market buyback which Packer could choose to participate in to further reduce his stake.

While the NSW gaming regulator has supposedly reached agreement with Packer that he won’t seek to influence Crown’s board composition for the next three years, the mainstream media completely missed the fact that he voted his full 250 million shares on all eight resolutions at last week’s Crown Resorts AGM.

Crown has 677 million ordinary shares on issue and the voter turnout was about 565 million on all resolutions, Packer must have voted, including delivering the pivotal bloc which avoided a full board spill after the second strike on the remuneration report.

Such voting support might explain why new independent director Nigel Morrison, a CEO of Crown Melbourne in the early years, was so dismissive of my suggestion at the AGM (see question 22 here) that Crown sue Packer and some of his former board cronies for incompetently inflicting so much damage on the company.

Packer has received more than $1 billion of dividends from Crown over the past 14 years but his last payday was a $75 million cheque on April 3, 2020.

After watching the value of his residual stake soar to $2.61 billion on the day the Victorian royal commission report was released, Packer might be tempted to cash in quickly while he can.

The Victorian government is talking up the role of special monitor Stephen O’Bryan QC. His appointment does raise the question of who will be in charge: Crown CEO Steve McCann, chair-elect Ziggy Switkowski, or O’Bryan, who will have no power over Crown’s Perth and Sydney casinos.

Since Crown Melbourne opened in 1994, gamblers have lost about $30 billion and the Victorian government has pocketed about $5 billion in tax. The forecast for 2021-22 is for the state to receive $230 million, which is something the Crown board might remind O’Bryan of if he starts directing it to stop trying to maximise gambling revenue when the casino reopens onFriday night.