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What James Packer’s loss of Crown teaches us

Peter Switzer
15 February 2022

James Packer is set to pocket $3.2bn from US private equity business Blackstone as he surrenders his 37% share in gambling operation Crown Resorts. And while the sum being handed over to Mr Packer is HUGE, the payment would definitely be a bitter-sweet experience.

You see, this was a lovechild of his father Kerry Packer that had been conceived by his business and horse racing mate, Melbourne entrepreneur, Lloyd Williams. And while the saga of Crown is an intriguing story in its own right, there are valuable lessons for any budding stock market investor. This chart of Crown’s share price is a good starting point.

Crown Resorts (CWN)

Before the Coronavirus hit in February 2020, Crown had been roughly a $13 stock. In 2014, it was a $17 stock. Anyone who bought in back then has been in a world of pain. And that pain doubled in May 2021 when the findings of the first inquiry into Crown’s fitness to hold a gambling licence in NSW saw its share price plummet to $8.41.

Adding to a shareholder’s misery were new inquiries announced with Royal Commission powers in Victoria and WA. It was a shocker for the company, shareholders and James Packer, who saw a $3bn company shredded down to $2bn, which was a 33% loss!

At that point, shareholders had some choices: sell out and cop the loss; buy more to bring down their average cost of purchase of the stock; or hang on and hope that a new buyer would come to the rescue.

That new buyer was Blackstone, which offered $11.85 a share. And that’s when a lesson taught to me by Kerry Packer’s former stockbroker, the late Rene Rivkin, came back to me.

When I was interviewing Rivkin on my old Qantas Talking Business program, he advised that when the company is a quality operation, generally the first bid in a takeover is seldom the last. He actually said there are often three more offers as others join in the bidding process.

In this case, Sydney’s Star Entertainment joined the contest and put in a merger offer at $12.50 a share but for a number of reasons, including its own licence inquiry, dropped out, leaving Blackstone as the ultimate winner.

Believing Rene’s advice saw a share price gain from $11.85 to $13.10, which is over a 10% gain in less than a year, but it does come with risks.

And that’s why the stock market compared to reliable term deposits is much more rewarding, but it’s the payment for taking the risks.

The best money-making strategy was to buy Crown at $8.45, which would’ve netted you a 33% gain in under a year! However, you had to hope that Crown wouldn’t lose its licence, that a new buyer could get a licence and that a new buyer would come along if a prospective buyer such as Blackstone dropped out because regulation demands made it all too hard.

Gambling for new bidders joining the competition for a takeover target company has a history of working, but AMP recently failed to follow the script. A year ago, a US-based company, Ares Management, offered $1.85 a share but rather than upping the price, the AMP’s suitor withdrew the offer and the current share price is $1.01!

The difference was AMP was a business on the slide, while Crown was a quality business with a problem that could be fixed with a new owner of the licence. That said, it was still a gamble, which was explained by the drop in the share price from $13 to $8.41.

The one resounding lesson for new investors is that if the asset/company is a quality performer, then buying when the market is most fearful is a great time to be a buyer.

Warren Buffett advised us: “Be fearful when others are greedy, and greedy when others are fearful.” 

Right now, fear is being driven by inflation, interest rate concerns and now Vladimir Putin. And when fear looks to be at its peak, I’m going to be keen to buy quality assets like an ETF for Australia’s best 200 companies, which you can buy in one trade nowadays.

I will let you know when I’m ready to buy because I expect there will be some more scary times for stocks, with the Fed set to raise interest rates in March. I suspect James Packer will be waiting with his $3.2bn to pick up some quality assets over 2022 as well.

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