Crown defers Cannery deal

Crown Defers Deal For U.S. Casinos

James Packer's Australian gaming empire postpones the completion of its deal to acquire U.S. Cannery Casino Resorts.

Since a casino boss is probably better than anyone at gauging odds, James Packer's decision to pay $370 million upfront to postpone for up to two years and to rewrite the deal that his firm, Crown, signed to buy into Cannery Casino Resorts of the United States can be seen as a calculated gamble that the gaming sector may bottom out in the interim.

In its original plan to expand into Las Vegas and western Pennsylvania, Crown , Australia’s largest casino operator, in December 2007 agreed to spend $1.75 billion to acquire Cannery Casino Resorts. (See "Crown Bets $1.8B On Las Vegas's Cannery Casino.") The privately held Cannery Casino Resorts currently owns and operates two casino-hotel complexes in North Las Vegas, as well as the Meadows Racetrack and Casino in Pittsburgh. The deal would have provided a way for Packer, who owns 38% of Crown, to move closer to achieving his ambition of building up a global casino empire through acquisitions in the United States, Canada and Europe.

However, Packer’s expansion plans have been thwarted by the global credit crunch and slowdown. Crown warned last month that the earnings generated by Cannery will be up to 30% lower than previously anticipated. Regulatory snags have dogged the deal as well.

Crown announced Friday that it would break the original agreement for a termination fee of $50 million. At the same time, it agreed to pay $320 million for nonparticipating shares that can be converted into a 24.5% stake. Crown was granted an option for two years to complete its purchase of the company's remaining shares for $1.4 billion.

The new accord also would allow Crown to pull the plug, wiping out the initial investment, by paying an additional termination fee of $200 million and investing $40 million for a 4.1% nonvoting stake in Cannery, if the Australian suitor failed to receive the necessary official approvals in the United States within 60 days. In other words, Crown would have to pay a total of $290 million to withdraw its acquisition.

The revised deal, which reduces Crown's potential exposure to downside risk, got preliminary support from the company’s investors. Shares of Crown closed 70 Australian cents (46 cents), or 13.5%, higher, at 5.90 Australian dollars ($3.86), on Friday after the announcement.

The new agreement as well will end a potential lawsuit between the Packer family and Millennium Gaming, the major shareholder in Cannery Casino Resorts, with a 58% holding. Millennium Gaming last month threatened to sue Gretel Packer, James Packer's sister, over her alleged lack of cooperativeness in the license application, which it maintained was endangering the deal.

Crown’s acquisition of Cannery Casino Resorts needed approval from regulatory authorities in Nevada and Pennsylvania. The Nevada Gaming Commission greenlighted the deal in late January, whereas the Pennsylvania Gaming Control Board has yet to give it the nod. Gretel Packer, who is also a shareholder of Crown, suddenly wanted to withdraw from the probity process being conducted by the Pennsylvania regulator last month, citing privacy concerns. Yet, it has not escaped notice that these concerns were expressed after the U.S. casino market took a deep plunge amid the recessionary climate. Crown posted a net loss of 409.7 million Australian dollars ($268.1 million) for the six months ending in December on write-downs of its U.S., Canadian and U.K. businesses.