What does Packer know?

Just what does billionaire James Packer know?

Yesterday Mr Packer’s Crown Limited (ASX: CWN) moved to sell its 10% stake in Echo Entertainment (ASX: EGP), less than a week after he gained approval to raise his stake to 25%.

Both companies are locked in a battle to build new casino facilities in Sydney. The incumbent, Echo, already has the Star casino, but James Packer has plans to build a high-roller gambling facility as part of a six-star hotel and gaming complex at Barangaroo, on Sydney’s waterfront.

The sticking point was that Echo holds Sydney’s exclusive casino licence, which is not due to expire until 2019. Crown has applied to the NSW government for approval to include a VIP, invitation only gaming facility, while Echo has lodged plans to commit $1 billion expanding its current investment in The Star and the surrounding area. Premier Barry O’Farrell has so far indicated that only one proposal will be approved.

The question on everyone’s lips is why did Mr Packer sell his stake? Many had speculated that Crown would launch a takeover for Echo, which also owns the Treasury casino in Brisbane, and Jupiters casinos on the Gold Coast and in Townsville. With Crown selling out, that no longer appears to be Mr Packer’s “game-plan”.

It seems there are several options he may be pursuing.

If he doesn’t get approval to build at Barangaroo, Mr Packer will walk away and concentrate on Crown’s other investments, including its joint venture in Macau with Melco Entertainment.

Mr Packer is confident that his bid will get approved, meaning he has no reason to keep his investment in Echo.

By selling Crown’s stake in Echo, investors may lose faith in Echo’s future, pushing the share price down even further, allowing Crown to buy back in at a lower price, and potentially launch a full takeover.

Foolish takeaway

Mr Packer’s decision to sell Crown’s Echo stake at a loss suggests he has more to gain from selling the stake, which suggests he’s very confident his plan for Barangaroo will get the nod over Echo’s proposal.

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