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Echo’s gamble to stop Crown

Echo Entertainment (ASX: EGP) is reported to have asked the NSW government to extend its casino licence beyond 2019, as the company tries to thwart James Packer’s Crown Limited (ASX: CWN) from setting up another casino in Sydney.

NSW premier Barry O’Farrell has announced that the infrastructure committee has agreed to consider the bid from Echo Entertainment under stage two of its unsolicited proposals process. If the government agrees to Echo’s plan, that will scupper Crown’s proposal for a $1 billion six-star hotel and casino complex at Barangaroo on Sydney’s foreshore.

Conversely, Crown’s proposal relies on the government ending Echo’s exclusivity agreement when it expires in November 2019. Mr Packer wants to build a VIP-only casino to attract wealthy Asian gamblers, but Echo has the exclusive casino licence for Sydney.

Crown also holds 10% of Echo’s shares and has applied to both NSW and Queensland regulators to up its stake to 25%.

The move by Echo appears to be designed to force Crown to proceed through regular channels to get approval for its high-roller casino at Barangaroo. That could see Crown make a full takeover offer for Echo and then split the casino licence between Echo’s The Star casino and the new venue. Crown, in the other hand, doesn’t want to make a costly takeover, hence the approach by James Packer to the NSW government through the ‘back door’.

Both proposals will now be considered by former Future Fund chairman David Murray, with Echo’s  proposal including additional investment in and around The Star casino to develop a ‘globally competitive integrated resort’ at Pyrmont, including local transport investment.

Foolish takeaway

The fight is not yet over between the two, but with Crown holding a 10% stake in Echo and its foot in the door to the NSW government, James Packer’s Crown appears to have the advantage at the moment.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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