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Arnold M. Knightly

Crown buys into Harrah's, Station

21 February 2008

LAS VEGAS, Nevada -- Crown Ltd. has increased its interest in the Las Vegas gaming market by spending $414 million for minority stakes in Harrah's Entertainment and Station Casinos, the Australian gaming company revealed Wednesday.

However, the Melbourne, Australia-based company also suggested that a proposed $5 billion hotel-casino project slated for the former Wet 'n Wild site may be in jeopardy because of the tightening credit markets. The company and its partners are reviewing their options for the project.

Crown, which is controlled by Australian billionaire James Packer, paid $242 million for a 4.9 percent stake in locals casino operator Station Casinos and an additional $172 million for a 2.5 percent interest in Harrah's Entertainment.

The announcements surprised shareholders and analysts who were not informed of the deals, which were made in the last few months.

The transactions were made around the same time Crown was signing agreements to purchase locally based casino company Cannery Casino Resorts for $1.8 billion in December.

Crown told analysts the stakes were made "for investment purposes only" and the company had "no intention of increasing its interest."

Crown said it will have no members on either of the companies' boards of directors because of the investments.

"However, they are hopeful (the investments) could lead to strategic opportunities," Deutsche Bank analyst Mark Wilson wrote in a note to investors. "We believe the strategic opportunities could include (joint ventures) and/or the acquisition of unwanted assets."

Representatives for Station Casinos and Harrah's Entertainment declined to comment on the investments.

A representative for Crown, which does not have a U.S. office, declined to provide additional information on its Las Vegas plans.

Although these deals boost Crown's local ties, another one could be running into trouble.

Crown holds a 37.5 percent interest in LVTI, the holding company for the proposed Crown Las Vegas project on the 27-acre site next to the Sahara.

Crown and its partners, Austin, Texas-based developer Christopher Milam and New York-based private equity firm York Capital Management, are "undertaking a strategic review of its development options in light of recent upheavals in capital markets," according to Crown's filing.

An option to buy the site for $475 million, or $17.7 million per acre, from Archon Corp. expires June 30.

Crown holds a 19.6 percent equity interest in the neighboring $2.9 billion Fontainebleau Las Vegas project, which is scheduled to open in 2010. Analysts surmised that Crown may abandon its proposed project for the one already under construction.

"If LVTI does not move forward with the land purchase, we believe Crown Ltd. could provide more equity support for Fontainebleau," wrote Wachovia Capital Markets bond analyst Dennis Farrell Jr. in a note to investors.

Milam declined to comment on the project's future on the record.

LVTI made a $40 million land option payment in May and has been paying $2.3 million in nonrefundable, nonapplicable monthly options payments since September to extend the deadline for the sale. The payments will increase to $2.9 million in April.

The site was approved in December by Clark County commissioners for a $5 billion mixed-use gaming project featuring a 1,064-foot hotel tower, which would be the largest such structure in the United States.

Archon is leasing the site as a construction staging area for the Fontainebleau.

Crown buys into Harrah's, Station is republished from