Blackstone lobs third takeover offer for Crown Resorts

Crown shares surge as CEO Steve McCann says a fresh offer from its second-biggest shareholder proves the casino group’s strength.

The new bid represents a slim 1.2 per cent increase on its last offer. Picture: Darrian Traynor/Getty Images.

Blackstone, the world’s largest private equity operator, has returned with a third bid for Crown Resorts in a deal that would value the casino operator at $8.5bn.

The all-cash offer of $12.50 a share is 15c higher than one made by Blackstone and rejected by the company in May. Blackstone has told Crown it could finalise the new deal by early next year.

On Friday, Crown chief executive Steve McCann said the board would consider the bid and make a decision that would be in the best interest of all shareholders.

Former Crown directors have repeatedly been criticised in inquiries into the conduct of the gaming giant for prioritising the interests of the company’s major shareholder, James Packer.

Mr Packer owns a 37 per cent stake in Crown through Consolidated Press Holdings. He has yet to make public his views about the Blackstone takeover bid.

“Crown does have world-class assets, very hard to replicate and superior to any other portfolio of like assets in the world,” Mr ­McCann told The Weekend Australian. “We have a global reputation for premium service, very strong fundamentals, relatively low gearing.

“The offer from Blackstone ­evidences that we continue to be attractive to investors.”

Blackstone has a 9.99 per cent holding in Crown. The latest bid comes as another potential suitor, Star Entertainment, faces its own questions about its interactions with organised crime.

The Independent Liquor & Gaming Authority, the NSW government agency that last year investigated Crown, launched an inquiry into Star in September.

Star made and withdrew an offer in May. The company said it was still “open to exploring potential value-enhancing opportunities with Crown”.

The Blackstone bid for Crown is subject to conditions including that the firm undertakes exclusive due diligence for four weeks and receives a unanimous Crown board recommendation in favour of the offer. Blackstone also requires final approval from its own investment committees.

Any acquisition would also be conditional on final confirmation of suitability from regulators in Victoria, NSW and Western Australia. Blackstone has left open the possibility of revising its bid pending the outcome of anti-money-laundering investigations.

The Blackstone bid comes three weeks after news that the casino operator would keep its Melbourne licence, despite a Victorian royal commission finding that its conduct was “disgraceful”.

Crown Resorts shares surged on news of the offer, closing up 16.6 per cent at $11.54 – a 4½-month high.

Blackstone’s price of $12.50 a share will be hotly debated among investors.

Forager Funds chief investment officer Steve Johnson said it was not surprising to see private equity groups showing interest in Crown after the finalisation of the Victorian review into its ­operations, which did not strip the company of its casino licence.

“Blackstone are saying ‘we will take on a lot of the risk of that sort of stuff’,” Mr Johnson said.

He said he saw the bid as ­opportunistic after recommendations from the Victorian inquiry. “It was a slap on the wrist, a fixable problem and not massively detrimental to the value,” he said. “It is probably a good time to get out there and say here is this cash which has certainty versus all this uncertainty that you shareholders are facing. I think the risks are probably overstated here.”

Crown has endured a tumultuous 18 months. In NSW the Bergin inquiry declared the company unfit to hold a gaming licence after it conceded that money-laundering may have occurred through its bank accounts. The licence has not yet been regained.

Commissioner Patricia Bergin was highly critical of the company’s governance around junket operators that brought in high-rolling gamblers from Asia. She found a litany of failures around risk management leadership and a disregard or arrogance towards regulatory compliance.

Mr McCann, who previously ran development giant Lendlease, said that since joining Crown six months ago he had seen the hard work that was already under way, work that had been accelerated as part of a reform program.

“We have a strong recovery plan. We are well advanced on our cultural overhaul and we are on a path to industry best practice governance and compliance so I think we have come a long way,” he said. “There are fundamental changes in the business. They have strengthened the business and they will enhance long-term value.”

If a bid is accepted, Blackstone will also have to gain probity in Australia and that process is under way. The private equity group has extensive gambling operations and has passed probity in Nevada to run casinos in Las Vegas.

ILGA chairman Philip Crawford told The Australian last month: “I would expect that the due diligence and discussion with Blackstone on their probity will be completed by the end of the month.”

However, any final sign-off would probably be made in the context of the transaction.

“I think they will probably be favourably viewed by the regulator, which is really important here,” Forager’s Mr Johnson said.

The position of two other important players remains unclear.

Mr Packer is required to sell down his holding in the company to 5 per cent by 2024.

Accepting the offer from Blackstone would take him out of the casino market in Australia.

Ben Brownette, an analyst at Jardens, told clients in a note this week that the experience of casinos in Las Vegas “and other major gateway cities such as Boston ­indicates a high level of pent-up demand and we expect Australia’s major cities to be no different”.

“Casino markets globally have bounced back strongly from Covid-19 restrictions,” Mr Brownette said.