Packer Raises Stakes in Casino Bet That Has Cost $1 Billion

Oct. 14 (Bloomberg) -- James Packer, Australia’s richest man, has raised the stakes in a bet that has so far lost at least $1 billion.

Packer paid A$205 million ($186 million) to increase his stake in Crown Ltd., Australia’s largest casino owner, to more than 40 percent, according to a filing yesterday. The purchase of 3 percent of Crown’s shares is the most he can make for six months without making a full bid, according to Australian stock exchange rules.

Since inheriting Australia’s largest fortune four years ago, James Packer has used the A$5 billion sale of his father Kerry’s media empire to underwrite a A$1.4 billion international expansion in gambling in North America. While writedowns on the investment have led to a net loss for Crown, investors such as Theo Maas expect the 42-year-old to boost spending on gambling.

“Gaming and casinos are especially high on his list of priorities,” said Maas, who helps manage $3.5 billion at Fortis Investment Partners in Sydney, including Crown shares. “There aren’t many in the gaming industry at the moment who have that sort of money.”

Melbourne-based Crown turned to a A$1.2 billion loss in the 12 months ended June after slashing the value of investments in operators such as Station Casinos Inc., Harrah’s Entertainment Inc, Cannery Casino Resorts LLC and Fontainebleau Resorts LLC.

Crown’s A$1.377 billion of equity investments in the overseas operators, which Chief Executive Officer Rowen Craigie described as “ill-timed,” are now worth A$50 million in the company’s books, or 3.6 percent of their original value.

Gambling Revenue

Gambling revenue has fallen for 20 straight months on the Las Vegas Strip while it’s declined 13 months in Atlantic City, the second-largest U.S. market.

Crown fell 0.7 percent to A$9.13 as of 10:05 a.m. in Sydney trading. The stock has gained 53 percent this year.

Packer’s increased investment comes after the publication of an unauthorized biography this week. The book, “Who wants to be a billionaire? The James Packer Story”, was written by journalist Paul Barry, who also wrote a 1993 best-seller on Packer’s father, “The Rise and Rise of Kerry Packer.”

The Packer family raised A$396 million last month selling their 21 percent stake in investment manager Challenger Financial Services Group. In March, Packer sold the family’s Australian cattle ranches to U.K. buyout company Terra Firma Capital Partners Ltd. for about A$425 million.

Crown didn’t respond to requests from Bloomberg News to interview Packer, its chairman. Bloomberg has made four requests to interview him in the past year.

Packer’s asset sales give him the flexibility to increase his Crown stake after six months, while the company’s balance sheet enables it to seek acquisitions, said Cameron Peacock, an analyst at IG Markets in Melbourne.

Personal Wealth

Packer’s personal wealth has halved since taking over the family business after Kerry Packer died, according to BRW Magazine, which compiles an annual list of Australia’s richest people. Packer was ranked Australia’s richest man by Forbes Magazine in May, with a fortune of $3.1 billion.

Among U.S. gambling companies to file for bankruptcy are Station, Trump Entertainment Resorts Inc., Fontainebleau Las Vegas and Herbst Gaming Inc., which operates 12 casinos in Nevada.

Cosmopolitan Resort & Casino is now owned by Deutsche Bank AG after the lender foreclosed while Harrah’s, the world’s largest casino company, is reducing long-term debt of more than $20 billion from when it was acquired by buyout firms Apollo Management LP and TPG Inc.

Distressed Assets

“There are a hell of a lot of companies in trouble and someone like Crown can do well out of it,” Peacock said. “They have recapitalized themselves and could be looking to buy some distressed casino assets at distressed prices.”

Harry Theodore, an analyst at Royal Bank of Scotland Group Plc, said Crown’s low borrowings, coupled with earnings from Australian casinos, means the company may lead other operators in making acquisitions.

The company’s net debt is 0.9 times earnings before interest, tax deprecation and amortization, compared with 4.6 times at Wynn Resorts Ltd., 8.4 times for MGM Mirage and 9.9 times at Las Vegas Sands Corp, the company said Aug. 27.

“We see Crown’s strong balance sheet as a significant advantage in the current environment and believe it has the potential to provide substantial growth opportunities,” Theodore, who recommends buying the stock, said in an Oct. 12 report.

RBS expects acquisitions to focus on the Australian and Asian regions, including Macau, where Melco Crown Entertainment Ltd., 33.5 percent owned by Crown, has two casinos.

“While Crown’s track record on acquisitions in North America has been poor, the most influential factor in the failed acquisitions was poor timing,” Theodore said.