Real estate the major draw for US giant circling beleaguered Crown as royal commissions loom

The multi-billion-dollar takeover bid for beleaguered casino giant Crown may seem puzzling at first. But there’s some compelling reasons for the move.

A private equity giant’s takeover bid for Crown Resorts comes after its share price was hammered by COVID-19 closures and the headline-grabbing money laundering scandal.

So what is Blackstone’s plan for the embattled casino operator?

The $8bn offer was announced on Monday just two days before Crown faces a royal commission in Victoria over the explosive controversy embroiling its Perth and Melbourne operations that was laid bare in last year’s lengthy NSW Independent Liquor and Gaming Authority inquiry.

The $11.85 cash per share bid compared with Crown’s closing price of $9.86 on Friday and sent the stock soaring beyond the offer price.

Shares in Crown have since settled back, trading as low as $11.60 on Tuesday.

They plunged to $6.12 just over a year ago as the pandemic took hold. That compares with $14.23 in August 2018.

Blackstone may see plenty of allure in Crown even while gambling revenue has dwindled. Picture: William West/AFP

Ord Minnett said Blackstone’s highly conditional bid would not be enough to secure the backing of either shareholders or the board given where shares in Crown and rival Star Entertainment Group were trading prior to COVID-19.

The wealth management group said there was also the upside potential of Crown’s new $2.2bn casino at Barangaroo in Sydney despite the planned start of gambling in December being delayed in light of the damning NSW inquiry evidence.

The state regulator advised the company was no longer suitable to retain its gaming licence, and Crown also faces a royal commission into its suitability to hold one in Western Australia.

While the takeover offer may seem puzzling given such circumstances, Crown’s luxury apartments at the $2.2bn waterfront Barangaroo development are selling.

It’s those and other real estate assets that are likely the main prize for Blackstone while it awaits a return to normal gambling after the health crisis eases.

Sources have suggested Crown’s property assets could be worth about $4bn alone, Ord Minnett said.

Crown is selling luxury apartments at its Barangaroo development, which has Sydney’s best views. Picture: Joel Carrett/NCA NewsWire

‘They obviouslty have a lot of real estate assets, which is very attractive,” CommSec analyst James Tao told NCA NewsWire.

Mr Tao agreed with Ord Minnett that New York-based Blackstone’s experience with casinos in the US could be viewed positively by Australian regulators.

The group owns four casinos in Las Vegas and has passed Nevada’s probity process.

“This is a clear benefit for Blackstone’s prospects in Australia,” Ord Minnett said in a research note on Tuesday.

It said industry sources had suggested Blackstone began talks with Australian regulators on the probity process some six months ago.

“We expect ‘stable ownership’ will be the foremost consideration for regulators.”

While Crown had taken a broom through its board in the wake of the NSW findings, regulators may prefer a clean sweep, Mr Tao said.

“The current board and directors probably have a bit of a bad smell … there’s always going to be a bit of that legacy, that kind of stench attached,” he said.

Crown’s hotel at Barangaroo is enticing locals for staycations. Picture: Gaye Gerard/NCA NewsWire

“Sometimes you need a clean, fresh start – a new slate – and this could be that opportunity.

“A big change in management could be seen as a positive.”

Ord Minnett suggested Blackstone might seek to entice Star Entertainment, which already runs The Star Sydney in Pyrmont, as a potential joint venture partner or operator of Crown’s gaming assets.

In the US, Blackstone entered several deals whereby it bought casinos then took rent payments from the operators.

It could look to apply a similar strategy with Crown, whereby it splits the business into a property company that holds premium hotels and tourism assets and an entity that manages the casino side, Ord Minnett said.

Star would receive a significant fee on a percentage of revenue.

Asked if Blackstone’s offer was opportunistic given where Crown’s share price was now hovering compared with previous heights, Mr Tao said it was, but that’s business.

Blackstone already has a 9.99 per cent stake in Crown, while reclusive billionaire James Packer is its biggest investor with an interest of about 35 per cent.