Blackstone swoops on Crown

American private equity giant Blackstone has taken a strategic stake in the James Packer-backed group, igniting speculation of a restructure.

Billionaires Lawrence Ho and James Packer. Picture: Bloomberg

American private equity giant Blackstone has highlighted the attraction of Crown Resorts’ Australian property assets by opportunistically swooping on a strategic stake in the James Packer-backed group, igniting speculation of a restructure or even a potential future takeover of the casino company.

Nearly a year after Hong Kong billionaire Lawrence Ho’s Melco Resorts and Entertainment agreed to pay Mr Packer $1.76bn for a 19.9 per cent stake in Crown in two tranches, Melco on Wednesday sold its 9.9 per stake in the Australian gaming group to a Blackstone entity known as Midnight Acacia Holdings for $8.15 per share, or $552m.

Crown shares closed 94c or almost 11 per cent higher at $9.54, their highest level since March 6, amid speculation about Blackstone’s intentions. Blackstone declined to comment on its purchase.

Blackstone already owns the Cosmopolitan casino and the property assets of MGM Resort’s Bellagio casino, both on Las Vegas’s famed casino strip.

It is also a former owner of Hilton Worldwide Hotels, which it purchased, restructured and then refloated a decade later for a multi-billion-dollar profit.

Its play for Crown is believed to be driven by its desire to capitalise on the sharemarket’s undervaluing of the Australian casino company’s property portfolio, which — including plant and equipment — is valued on Crown’s balance sheet at over $4.6bn.

Crown’s casino licences are valued at around $1bn.

1 2 3 4 5

Crown shares have fallen substantially over the past six weeks after the company was forced to stand down 11,500 staff and take on $1bn of additional debt to ride out the impact of the coronavirus pandemic on its operations.

The sale of Melco’s interest in Crown raised immediate questions about the status of an inquiry into both companies by the NSW gaming regulator.

The Independent Liquor and Gaming Authority said on Wednesday it was aware of Mr Ho selling out of Crown and would consider making any adjustments necessary to its inquiry, which has been deferred until the coronavirus outbreak passes.

But a spokeswoman for the regulator said the investigation would continue.

“The authority and its casino inquiry will be giving consideration to the announcement and any adjustments that may be necessary regarding the ongoing work of the inquiry,” the spokeswoman said.

“As previously announced, most of the work of the Authority’s Casino Inquiry has been deferred in the current context of the COVID-19 epidemic. The Inquiry will continue when it is safe and practicable to do so.”

Melco’s exit price compares to the $13 a share it paid for 9.9 per cent of Crown in May last year in a deal that reunited Mr Ho and Mr Packer, who had previously been business partners, when Mr Ho said he was interested in taking a controlling stake in the group.

Wednesday’s deal was struck at a 5 per cent discount to Crown’s closing price on Tuesday, implying a $328m loss on the investment for Melco.

Melco’s parent company said in a Hong Kong Stock Exchange filing on Wednesday that the group would record a loss (exclusive of transaction expenses) of around $HK1.3bn, or around $260m, on its Crown investment for the financial year ending December 31, 2020. But the final recorded loss will depend on exchange rates.

It had previously booked a $73m currency loss on the investment in its balance sheet for the year ending December 31, 2019.

Melco International Development said the sale would allow the group to strengthen its balance sheet, noting the proceeds would be used for general working capital.

It also said it would allow Melco Resorts to refocus on its core operations in the wake of the coronavirus pandemic.

“The directors consider that the disposal is an opportunity for the group to realise its investment in Crown Resorts at a market price and to reallocate the group’s resources to facilitate its core operations (including operations in Macau, The Philippines and Cyprus) and to strengthen the balance sheet of Melco Resorts during the recent COVID-19 pandemic. The directors believe that the terms of the disposal were fair and reasonable and in the interest of the shareholders as a whole,’’ Melco International Development said in the filing.

Mr Ho declined to comment further. However, he is said to be keen to maintain his relationship with Mr Packer. The Macau casino industry is losing between $US1.5m ($2.3m) and $US4m a day because of Chinese travel restrictions imposed in the wake of the coronavirus pandemic.

According to JPMorgan analysts, Macau’s gambling revenue could fall to near zero in April.

While Melco has a cash pile of more than $US1.3bn, it has substantial long-term debt, although no obligations are due until November next year.

Bloomberg reported this week that Mr Ho sent an email to staff detailing “devastating” business conditions flowing from the coronavirus pandemic and noting the impact on the company would flow into 2021.

The email also reportedly said nine executives were leaving the company’s gaming operations, retail and marketing divisions, four of whom were voluntary departures who could return in future.

It also noted Mr Ho will no longer draw a salary this year and other executives will contribute a third of their salaries to company costs.

Mr Ho has purchased $US11m worth of shares in Melco Resorts parent Melco International Development in recent weeks.

Melco’s purchase of a second tranche of Crown shares was put on hold last year after the NSW gambling regulator launched an unprecedented public inquiry into probity issues around Crown and Melco, including whether the share sale breached the terms of Crown’s Sydney casino licence.

In February Melco announced it had decided not to go ahead with a deal to buy the second tranche of shares in Crown from Mr Packer, worth $880m, because it needed to focus on its core business in Asia.

A fortnight ago Melco received a $20m dividend payment from Crown when the Australian casino company elected to proceed with its dividend payment.