Bankers for US private equity giant Blackstone were lucky to dodge Australia’s Omicron wave as they quietly undertook yet another round of tyre kicking of Crown Resorts’ Melbourne and Sydney operations in early December.
But this latest exercise helped the New York-based Blackstone land at a magic number above $13-a-share, marking its fourth bid for the casino giant.
This is the critical number that now looks set to finally win over Crown’s multi-billionaire major shareholder James Packer for a sale.
Long-time Crown stalker Blackstone on Thursday sweetened its offer to $8.9bn for the under-pressure casino operator. This sees the cash offer moving to $13.10 per share, up from the $12.50 a share offer it made in November. Blackstone initially opened its bidding in March last year at $11.85, or $8bn.
Crown’s board under Ziggy Switkowski, has tentatively backed the latest offer subject to further negotiation with Blackstone and no rival offer emerging. At this price Crown said it was its board’s “current unanimous intention” to recommend that shareholders vote in favour of the proposal, finally delivering Crown to Blackstone.
Importantly at these levels the bid delivers an emotional win for Packer who in mid-2019 sold down some of his stake – equivalent to 10 per cent stake in Crown – to Lawrence Ho’s Melco for $13.00 a share.
In early 2020 as Covid spread around the world and faced with the looming prospect of an Australian probe, Ho sold his Crown stake at a loss.
Blackstone, which has been holding talks with Packer’s camp, has now offered him a $3.27bn cash pathway out of Crown at a price pitched above his initial Ho sale.
Combined with a recommendation from the Crown board, this price makes it highly compelling for Packer to accept, with the billionaire thought to be looking favourably at the latest offer.
That means on the fourth attempt, it could be Blackstone’s game to lose.
Over the past year Packer has essentially become little more than a passive investor in Crown given the tough recommendations of NSW’s Bergin inquiry which put restrictions around how he can use his 37 per cent stake.
Upping the pressure, the Victorian royal commission into Crown last year recommended Packer sell down his controlling stake in Crown to 5 per cent within two years. The billionaire, who is being advised by investment bank Moelis, has not tabled any objections to this, but noted any sale would come down to a matter of timing.
Officially Packer’s private CPH vehicle was giving little away, releasing a short statement saying it said it was reviewing the offer.
“The assets of Crown Resorts are world class and this is reflected in the significant interest in the company,” CPH added.
Covid pressure
For Crown’s newly-constructed board, the $400m sweetener from November was a less emotional figure, but firm enough to change its thinking to endorse to shareholders.
Switkowski and his management team including new CEO Steve McCann still have a mountain to climb with Crown facing a multi-year turnaround journey as it navigates the short term uncertainty of the Covid economy, including the loss of its international business.
At the same time there are massive spending commitments at Crown’s flagship, but ageing, Melbourne casino that loom on the horizon.
This follows the bulk of Crown’s investment spend in the past five years being used in the construction of its $2bn Sydney casino. This mega project came on the back of a $1.3bn major renovation of Crown’s Perth casino.
There’s still work to be done getting final board approval and Blackstone also needs to undertake full due diligence, which gives it access to confidential financials and commercial agreements.
Blackstone also needs approval from three state regulators, although it has been doing significant work behind the scenes on this front already.
In the interim Crown’s board will test the temperature from shareholders, including Packer’s camp, toward the deal.
This could get all parties to point where the buyout will be put to Crown shareholders with a recommended vote from the board some time in the second quarter. If all things going smoothly, this means a possible May meeting.
The $8.9bn figure puts Crown just that further out of reach for would be suitor and Australian rival, Sydney casino operator Star Entertainment which has a market valuation of $3.4bn. It would have to structure a share-based deal which will result in a loss of control transfer from Star’s shareholders to Crown shareholders. At the same time Blackstone’s property arm is sitting on a 10 per cent stake, giving it a seat at the table.
Other suitors included Wynn Resorts, which in 2019 entertained a short-lived $10bn bid,
Another bidder could yet emerge and Crown will certainly test the market for this. US-based operator Wynn Resorts entertained a short lived $10bn bid in 2019 and another private equity group Oaktree has previously lobbed a $3bn proposal to Crown to fund a buyout of Packer’s stake. Last August Crown said it was no longer in talks with Oaktree.
Big plans
If successful, Blackstone has big plans for Crown. It is acutely aware that the casino game had changed in Australia and this is going to limit the potential growth of the business.
Blackstone, under Australian private equity boss James Carnegie and real estate head Chris Tynan, continue to point to the The Cosmopolitan of Las Vegas path for Crown. After buying the tired casino in 2014, Blackstone overhauled the management and spent $US500m ($686m) in the complex to return it to one of the leading casino’s on the Las Vegas strip. It sold the Cosmopolitan in September for $US5.7bn.
With the Asian high-roller business largely closed off and the Chinese junket tours banned, Crown now needs to become a more domestic-focused business. This means the casinos have to work harder targeting interstate tourism and local events while turning the properties into entertainment hubs.
Blackstone, which is also one the worlds biggest property investors would have plans to monetise Crown’s vast property holdings although at this point there are no plans under the current deal.
Whether Blackstone would keep well-regarded CEO Steve McCann, the former Lendlease boss, on board in private ownership is a matter for negotiation. Its too early to hold talks, although McCann has a change of control clause in his employment contract, meaning he is in line for an immediate payout of up to $9m, including some $5m worth of long term performance rights that vest if Blackstone emerges as owner.
A change of control to Blackstone doesn’t ease Crown’s regulatory hurdles with the Melbourne casino to still required operate under the tough “special manager” supervision requirement proposed by the Victorian royal commission. The recommendations of the Western Australia royal commission are yet to be tabled, but they are expected to deliver further constraints for Crown.
By playing the long game on Crown, the odds are now clearly loaded in favour of Blackstone.
johnstone@theaustralian.com.au
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