U.S.-based private equity firm Blackstone has made a play for troubled Australia gaming operator Crown Resorts.
The company helmed by billionaire James Packer hit the rocks with the recent determination that it’s unsuitable to operate its planned VIP casino in New South Wales. Following that verdict, which caused a mass exodus of Crown executives and board members, new inquiries were launched into Crown’s business practices and associates in Western Australia and Victoria.
On March 22, Blackstone offered AU$8 billion (US$6.2 billion) to buy Crown, which is now on order from three state governments to show it can run a clean business. Crown reportedly looked the other way as millions of dollars were laundered through its casinos in Melbourne and Perth.
Following the 18-month NSW investigation known as the Bergin Report, Crown also faced censure for putting its China-based staff in danger. In 2016, 18 Crown employees were arrested for illegally promoting gambling in the country. They were jailed for months in Shanghai before being released and deported.
Blackstone already owns a 9.9 percent stake in Crown, which it acquired when previous suitor Melco Resorts & Entertainment sold off its stake. J.P. Morgan analysts say the current bid is unlikely to win approval from the Crown board or shareholders, and suggested that the deal could be sweetened if the second biggest operator in the market, Star Entertainment, steps in to manage the casino.
In another view, according to Inside Asian Gaming, Fitch Ratings says the Blackstone bid could help Crown pass suitability tests—and also ward off any takeover attempt by Star. In a note on March 24, Fitch said the acquisition of all outstanding Crown shares by Blackstone or any group would help by permanently ending the relationship with Crown’s largest shareholder, James Packer’s Consolidated Press Holdings (CPH). The NSW Independent Liquor and Gaming Authority identified CPH as the source of regulatory lapses because of undue influence by CPH and Packer over the Crown Resorts board.
A Reuters review indicated that the lowball offer could serve as a “possible reprieve from regulatory pressure.”
“It’s nice to get a bid, and now it’s about price discovery,” said John Ayoub, a portfolio manager at Wilson Asset Management, which has Crown shares. “These stocks are trading at trough earnings and I wouldn’t be surprised to see further activity in the sector.”
“Blackstone couldn’t get away with a price like this if the casinos weren’t being affected by Covid and the management issues at the same time,” said Nathan Bell, portfolio manager of Intelligent Investor, which also has Crown shares. “It’s only an opening bid. It’s a messy situation and offering to acquire a casino is a complex affair at the best of times due to all the regulation.”
Crown said its board had not yet formed a view on the proposal but would talk to “relevant stakeholders including regulatory authorities”.
Company founder James Packer, the top shareholder with a 37 percent stake, would receive about AU$2.9 billion if the deal went through. Last Tuesday, Packer told the Australian Financial Review, “I am following the Crown board re my position” when asked if he would sell his stake.
