Blackstone’s takeover bid for Crown could bring rival Star Entertainment to the table
Its $8bn bid to buy Crown is too low to win approval, but private equity giant Blackstone could be using it as part of another strategy, analysts say.
US private giant Blackstone’s $8bn “low ball offer” to take over Crown Resorts may end up being too generous, as investors in the beleaguered casino group sweat on a Victorian royal commission potentially unearthing another bombshell into the James Packer-backed company.
The commission, which has broader terms of reference than a recent NSW inquiry into Crown — which found the company was unsuitable to hold a licence at its new $2.2bn Barangaroo complex after it facilitated money laundering at its flagship Melbourne casino — will begin on Wednesday.
The commission will convene at 10am for roughly an hour where it is expected commissioner Raymond Finkelstein will provide more clarity to the scope of the inquiry, which is yet to finalise a hearing schedule or witness list.
Mr Finkelstein’s opening statements, and information as to whether major shareholder James Packer or departed CEO Ken Barton will appear before the commission will rapidly shape market expectations on whether new, damaging, information about the company will emerge.
Industry analysts say it is for this reason that the timing of Blackstone’s $11.85 per share bid is peculiar, with the offer presently too low to be accepted by Crown shareholders or the board, but potentially too generous if a bombshell drops during the royal commission.
JPMorgan analysts speculate the timing of the bid may be planned to entice Crown competitor Star Entertainment Group into a joint venture or operating partnership wherein Blackstone acquires Crown’s properties and Star operates them for a fee.
“The timing of Blackstone’s bid would appear puzzling, unless the purpose was phoning a friend to assist in the bid premium prior to royal commission findings,” the analysts wrote.
“This provides Star with a significant value-creation opportunity without having to independently bid for Crown. There is further upside through synergy realisation as well.”
The analysts note that Blackstone has form in this area and has entered into several acquisition deals on a sale and leaseback basis in the US, purchasing properties like the MGM Grand & Mandalay Bay in Las Vegas and handing operational responsibility to MGM in return for rent payments.
But they believe the offer price of $11.85 per share is not enough to receive board and shareholder approval.
“Crown’s share price is discounted from the pending royal commissions, and this bid indicates Blackstone’s valuation for the real estate assets (with the casino licences as risk-adjusted upside),” the analysts wrote.
Credit Suisse analyst Larry Gandler called Blackstone’s $11.85 bid “opportunistic” given regulatory concerns, COVID-19, and the fact that major shareholder James Packer has twice attempted to reduce his stake in recent years.
“Crown’s share price reflects depressed earnings from COVID-19, risk from regulatory inquisitions, and the prospect that its cornerstone shareholder remains a seller as it has the last two years,” Mr Gandler said, adding that although the offer price could rise to $15 per share in a bidding war, it is unlikely former suitors may return to make a competing bid.
“We think LVS and Wynn are now focused putting marginal capital into US iGaming,” he said, adding that Blackstone may look to separate Crown’s property holdings from their gaming activities.
“Asian casinos would struggle to obtain probity in Australia, making a conditional bid highly uncertain.”
While rival casino operators and other private equity groups have been keeping a close watch on Crown, given its high quality assets in Melbourne, Sydney and Perth, the company is yet to receive any further offers — either informal or formal.
UBS analyst Marcus Curley said if a straight takeover of Crown by Blackstone eventuated, it would have little impact on competitors Star or SkyCity, saying that “Blackstone’s casino investments have no obvious operational overlap with Crown.
But it is understood that Crown’s leadership under executive chairman Helen Coonan is determined to ensure it can get through not only the Victorian royal commission but also a separate royal commission in Western Australia, which is expected to finish late this year. If Ms Coonan can gain the confidence of Victorian and WA regulators — as she did in NSW — that she can turn Crown around and make it's a suitable casino operator, Crown’s share price is expected to rise significantly.
As the vaccination program begins for COVID-19, which restricted most of Crown’s operations last year, and if pandemic eases towards the end of the year, that is also expected to bode well for Crown.
“We believe the share price is currently suppressed from transient factors including regulatory uncertainty and COVID-19 restrictions that will both pass in time,” Crown investor Lanyon Asset Management said, adding it believed the company was worth at least $16 a share.
Crown Resorts closed down 1 per cent at $11.85 per share after gaining almost 20 per cent on Monday.
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