Blackstone due diligence places Crown into the big leagues
The pandemic has forced Blackstone to shift the focus for Crown’s Barangaroo away from high rollers to compete with Sydney’s leagues clubs.
The RSLs of southwestern Sydney – with their chicken schnitzels, steaks and schooners – are a world away from the luxury of Crown’s Barangaroo resort, where the nightly room rate tops $1000.
But that’s exactly where the three executives from US private equity giant Blackstone – in Australia to complete their due diligence on the gaming giant – found themselves in early January.
As the days swung between heavy rain, heat and breathless humidity, Blackstone’s trio of casino experts ventured west They also checked out rival clubs closer to the CBD.
The suburban clubs – of such a scale they appear as mini casinos – were meant to cater for a different clientele to Crown’s massive Barangaroo complex.
Barangaroo – still awaiting a licence to open its gaming floors after the scathing Bergin inquiry – has been designed to cater for the international VIP market, with not a poker machine in sight.
But the Covid-19 pandemic has decimated overseas high-roller revenue, forcing Barangaroo to tilt to catering for the domestic market. It is no longer competing with the other casino in town, The Star, but Sydney’s leagues clubs.
On that score, the visits to the clubs – one even offers Drag Bingo (balls drop from 8pm Friday) – formed a key part of Blackstone’s due diligence and the lifting of its bid for Crown to $8.9bn.
On Monday, after almost 12 months considering and rejecting offers, the Crown board finally said shareholders should sell out. If the deal proceeds, it will be the end of the Packer family’s decades-long association with the storied – and controversial – casino group.
In Blackstone’s mind, Barangaroo and Crown’s flagship casino in Melbourne will form a key part in revitalising CBDs when Australia’s international border fully reopens later this month. The gaming complexes will have to work harder to bring people into town.
And Blackstone believes Sydney and Melbourne still have plenty to offer. As part of their unorthodox due diligence, the private equity executives visited Sydney’s Taronga Zoo and the best golf courses the Harbour City had to offer – putting themselves in their customer‘s shoes.
“Crown plays a pivotal role in Australia‘s economy through job creation, investment and as a tourism destination for locals and visitors alike,” Blackstone’s head of real estate, Chris Tynan, told The Australian. “We are excited to bring our local expertise and global hospitality and gaming experience to contribute to Australia’s post pandemic recovery and position Crown for future growth.”
Blackstone knows what it is doing. Its global real estate portfolio is valued at $US448bn ($630bn). Its investments include Las Vegas’s MGM Grand/Mandalay Bay, which it bought for $US4.6bn in 2020.
It also owns the Bellagio casino, which it snapped up for $US4.25bn in 2019.
It has used its substantial coffers to turn around another Las Vegas casino, The Cosmopolitan, which it bought from Deutsche Bank for $US1.73bn in 2014. Blackstone poured $US500m into the casino, renovating 3000 rooms, building another 67 rooms and suites before overhauling the menu and gaming floor to transform it into one of Las Vegas’s premium gaming complexes.
Blackstone is also a big player in Latin America after it snapped up casino giant Cirsa from Spanish billionaire Manuel Lao Hernandez for an undisclosed sum in early 2018. It has 66 casinos in Colombia, 34 in Panama and 29 in Peru – with another eight in Costa Rica and six in the Dominican Republic. Crucially, Blackstone’s unusual due diligence process has proven to be a winning formula for Crown’s biggest shareholder, James Packer, who is set for a $3.28bn payday after he relinquishes his 20-year association with the company.
The offer price of $13.10 is enough for Mr Packer – who was forced to reduce his 37 per cent stake to 5 per cent following the Victorian royal commission – to save face and earn a profit.
Mr Packer, who is in Colorado, was prepared to sell a 19.99 per cent stake in 2019 to Macau gaming billionaire Lawrence Ho for $13 a share. The deal fell through, and that extra 10c has put an another $25m in Mr Packer’s pocket.
Despite being a win for Mr Packer, Blackstone was prevented from speaking directly to Crown’s biggest shareholder, who has been distancing his private company – Consolidated Press Holdings – from Crown after three bruising inquiries in NSW, Victoria and Western Australia. “That influence has ceased permanently,” Noel Hutley SC, acting for Mr Packer and CPH, told a WA royal commission earlier this month. “It is extinct, not merely dormant.”
Talks were done at company level or via advisers, with Moelis Australia managing director and Sydney Swans chairman Andrew Pridham in CPH’s camp, and Kelvin Barry and UBS looking after Crown.
Crown was Mr Packer’s big bet on shifting his family’s business from media to casinos – with forays into film production and other ventures along the way.
It was a brand he hoped to turn global but his plans began falling like a house of cards. There was the arrest of Chinese staff in 2016, then Las Vegas gambling giant Wynn Resorts walking away from $10bn takeover talks in 2019 before Australian inquiries’ explosive revelations that Crown facilitated money laundering and other organised crime.
Both NSW and Victoria ruled that Crown was no longer suitable to hold a casino licence, outlining a path of reform for the company, including a shake-up of its board and senior management.
At stake was the lion’s share of Mr Packer’s fortune, now estimated at $4bn. Mr Packer, in earlier years, had taken to measuring the success of his business dealings against his father Kerry’s fortune, worth of $6bn when he died in 2005. This had declined in the past decade, particularly after a $1.25bn settlement James Packer paid his sister Gretel in 2015.
Crown shareholders are expected to vote on Blackstone’s offer sometime after March. But the deal is still subject to regulatory approval.
Blackstone has been subject to scrutiny from the NSW independent Liquor and Gaming Authority and is understood to pass most of its regulatory checks with the final step being a transaction for the regulator to approve.
Crown Melbourne founder Lloyd Williams told The Australian that he welcomed the deal, which would “recharge” the casino group’s brand and secure the jobs of employees.
“James Carnegie (and) Blackstone are perfect buyers – very, very well-experienced, very well capitalised,” Mr Williams said.
“I am sure they will recharge the Crown brand.
“The outcome is perfect – existing shareholders receive a very satisfactory price, employees’ future security is guaranteed.
“I am delighted to see James, the son of Sir Roderick Carnegie, my ex-chairman, to have been successful,” he said.
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