Blackstone Group Launches Crown Takeover Bid
American private equity giant Blackstone Group has bid to take over Crown Resorts. Shares in Crown surged 21.4% as investors reacted positively to the takeover news.
Blackstone has officially thrown its hat into the ring, testing the waters with an $8.02 billion bid. The American investment company already owns 9.99% of Crown, having purchased the holding from Melco Resorts last year. The company paid $8.15 per share for its stake in Crown.
Crown Resorts confirmed the takeover bid via a press release on the Australian Securities Exchange.
“Crown Resorts Limited announced that yesterday it received an unsolicited, non-binding and indicative proposal from a company on behalf of funds managed and advised by The Blackstone Group Inc. and its affiliated, to acquire all of the shares in Crown by way of a scheme of arrangement at an indicative price of $11.85 cash per share. The indicative price will be reduced by the value of any dividends or distributions declared or paid by Crown.”
The Blackstone bid represents a 19% premium on Crown’s share price at the time of its most recent financial report last month.
Crown Likely To Reject Opening Blackstone Bid
JP Morgan analysts do not believe Crown will accept this opening bid from Blackstone. $11.85 per share is much lower than the $14.75 offered by Wynn Resorts in April 2019. Wynn later pulled out of any deal.
Furthermore, Crown’s shared traded much higher than recently before the COVID-19 outbreak. Also, there is massive potential in Crown’s $2.2 billion Barangaroo complex, where its casino remains closed currently.
“Based on where Crown (and Star Entertainment Group) were trading before COVID-19 (and with the upside potential of Barangaroo), our initial view is $11.85 per share would be insufficient for approval from shareholders and the board.”
Those same JP Morgan analysts revealed further details that could throw a spanner in the works.
Blackstone is generally a property owner and has nothing to do with the day-to-day running of casinos. They recently acquired the Bellagio casino in Las Vegas for $5.5 billion. Blackstone owns the land and buildings, but MGM Grand runs the casino and pays a nine-figure annual rent.
Regulators will be delighted someone is willing to take over the controversial Crown, but they want someone else in charge of day-to-day activities. Buying Crown’s properties and renting to a suitable operator, such as Star Entertainment, is one viable option.
James Packer Offered a Way Out
Crown majority shareholder James Packer has made it no secret he is willing to offload his stock. Packer holds approximately 36% of Crown’s shares, making him the biggest shareholder by some distance.
Packer agreed to sell almost 20% of his stake to Melco Resorts in 2019. Melco agreed to pay $1.76 billion for Packer’s stake, pricing those shares at $13.00. The sale collapsed after regulators found links between Melco’s Lawrence Ho and companies controlled by his father, Stanley Ho. Only 10% changed hands, and Melco quickly sold them to Blackstone at a substantial loss.
It is not only shareholders Blackstone needs to convince because regulators have a say in any deal. Crown is currently unable to operate its Sydney casino after being found unfit to hold a license there. Its Melbourne property is undergoing a royal commission, and its Board of Directors has been decimated.
It is unlikely regulators will stand in the way of Blackstone removing Packer and Co. from power. They will, however, have something to say if Blackstone goes down the route of renting out Crown’s properties. Renting out to Star Entertainment, for example, leaves only one casino operator in Australia. Regulators despise the lack of competition in any industry, but gambling especially. Monopolies and lack of competition are bad for consumers, and regulators do not like that much.