Crown tipped to sell out of Macau operation to finance Echo takeover bid Crown Macau casino in Macau / supplied JAMES Packer's Crown could fund a $3.6 billion move on casino rival Echo Entertainment next year by exiting its growing Macau venture, analysts say. Crown this week confirmed a 4.9 per cent interest in Echo and Tabcorp Holdings by way of derivatives, which it acquired before Tabcorp's demerger of the casino group this month. Despite Crown saying it has no "current" intention of increasing its interest in either, Merrill Lynch analyst Nathan Gee said it could make a move next year on Echo after the relaunch of its Star City casino in Sydney. Echo is also upgrading its three casinos in Queensland in a $1.6bn expansion. Mr Gee said Crown acquired a stake in its Burswood casino in Perth in 2003 before its full takeover in 2004. "The Star relaunch in late 2011 will be a critical time for Echo management, so we think it makes sense for bidders to allow management to concentrate," he said. We can't discount a Crown takeover of Echo, but we think a deal is unlikely until 2012. A combination of Crown and Echo could create about $600m of net present value synergy benefits. Crown is expected to be weighed down by its holding in Echo and yesterday ended down 1.15 per cent at $8.57. Echo slid 1.7 per cent to $4.10. Takeover speculation has run wild around Echo and Tabcorp since its demerger in a similar vein to Foster's, which this week attracted a $9.5bn offer from brewing giant SAB Miller after it demerged its wine unit. While some analysts have questioned Crown moving on Echo, particularly given its chequered M&A track record, Mr Gee said Crown could pay up to $5.25 per share, or $3.6bn, for Echo and make the deal "valuation neutral." He said Crown could fund a bid without a large equity raising by selling its $2bn or so stake in its Macau venture, Melco Crown Entertainment (MPEL), plus up to $700m of debt. "We can't rule out Crown looking to divest MPEL, particularly if the Australian market continues to discount the value of Macau relative to the Melco Crown share price," Mr Gee said. Crown holds a 33.4 per cent stake in Melco Crown, which has signed a $US360m deal to secure the group's third casino resort in Macau. Citi yesterday initiated coverage of Echo at a buy and a $4.70 target price but said private equity was a more likely near-term buyer than Crown. "The numbers are challenging for Crown . . . private equity may have interest, as the casino cashflows facilitate high leverage, and the ultimate exit strategy is clear, through a sell-down of Star to Crown and Queensland casinos to Sky City," analyst Jenny Owen said. On Macquarie's numbers, predators would struggle to offer more than $5 a share for Echo. On Crown's Tabcorp holding, Mr Gee said it could hold in the hope of Tatts making its mooted move on Tabcorp.