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Sunday, September 18, 2011

Star casino owner Echo Entertainment a logical target for Crown - 19th September 2011

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BT Investment Management's Crispin Murray, Perpetual's Matt Williams, David Paradice from his eponymous fund management group, Lazard's Rob Osborn and Colonial's Marcus Fanning were among the investment management posse partying it up at Echo Entertainment's Sydney casino relaunch, but one shareholder's absence was notable.

James Packer, a small shareholder of Echo through his Crown casino company, declined an invitation to attend.

Although Crown is often touted as the logical acquirer of the $2.6 billion Echo, Packer has always pointed to tax as a major reason why he can't make the deal stack up. Governments in Victoria and Western Australia can't jack up taxes on Crown's Melbourne and Perth casinos without mutual agreement, unlike NSW. But UBS analysts led by Sam Theodore argue that Crown in Melbourne is reaching a point where its high-roller or VIP business will soon have to pay a "super tax" for earnings above a base rate set under a deal with the Victorian government agreed in the mid-1990s.

UBS says that Crown might look to generate more VIP revenues from its Perth casino but that buying Echo is another option.

On UBS numbers, merging Crown and Echo could generate $50 million in yearly savings. Even if Crown paid $4.90 a share for Echo, a 30 per cent premium on Friday's close of $3.77, the deal would add 5 per cent to EPS.

Echo chief Larry Mullin will be hoping a visit today from his former boss and US entrepreneur Donald Trump will create more good publicity. (Credit: News Limited)

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