Echo and Crown to gamble on joint venture?

Investors in Crown Limited (ASX: CWN) and Echo Entertainment Limited (ASX: EGP) will be closely watching for news from the NSW Independent Liquor and Gaming Authority and the Queensland Attorney-General on Crown’s submission to up its stake in Echo from the current 10% to as much as 25% of the company.

The Australian Financial Review (AFR) reports that the two companies have informally discussed setting up a joint venture to service the high rollers / VIP gambling market, in an effort to combat the increasing competition from new casinos popping up in Macau, the Philippines and across Asia. Although no formal discussions have taken place, the newspaper understands that both companies have expressed interest in the prospect.

Approvals from the two authorities will ultimately decide to what extent to which the two companies can cooperate, with both likely to cooperate on plans for a new casino at Sydney’s Barangaroo development on Sydney’s foreshore. According to the report, Crown has already commenced talks with Lend Lease Group (ASX: LLC) on a new luxury hotel and casino despite not holding a casino licence in Sydney.

Echo holds the only Sydney casino licence, so it remains to be seen whether the licence can be split, or whether the companies would need to apply for a second licence.

Flies in the ointment

Malaysian conglomerate Genting Group also holds 10% of Echo, but it’s unclear what the company’s plans are for its stake. The AFR has said that Crown’s major shareholder, James Packer has met with Malaysian billionaire K. T. Lim, who controls Genting, to discuss a potential alliance over Echo.

I’ve mentioned before, that Genting may want Echo to be split up with Echo’s Queensland casinos going to Genting, and the Sydney casino and Echo’s other assets ending up with Crown. Genting may be just as happy continuing as a major shareholder, so it’s in a position to have a say on any major moves by Echo.

The other issue is the pending sale of Consolidated Media Holdings (ASX: CMJ). James Packer owns 50% of the company and may need the funds to further his Sydney casino plans. News Corporation (ASX: NWS) has made a $3.50 per share takeover offer for Cons Media, but Seven Group Holdings (ASX: SVW) has applied to the Australian Competition and Consumer Commission (ACCC) for approval so that it too can make a bid. While the News Corp bid is rumoured to be approved soon, the ACCC has asked Seven for more information, which is likely to delay any potential bid by Seven for Cons Media, and could lead to further delays in the sale of the company.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.  The Motley Fool ‘s purpose is to help the world invest, better.  Take Stock  is 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.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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