High stakes game at the poker table

James Packer at a Crown Resorts AGM. Picture: AAP

Take a look at the corporate action on Crown Resorts and there are a lot of poker faces. Some of these faces, now on different sides of the takeover bid, know each other rather well. And the implications are fuelling the odd conspiracy.

A week ago, private equity giant Blackstone came back with a third bid for Crown at $12.50 cash a share, valuing the casino operator at $8.5bn. It was a 15 cent increase on its previous bid six months ago.

The Crown board acknowledged the offer the next day but said it had not formed a view on its merits and since then there has been radio silence.

In considering Crown shareholders, there is James Packer’s Consolidated Press Holdings 37 per cent and the rest. If Packer sells out to Blackstone, it’s all over. The former casino mogul is under orders from Victorian royal commissioner Ray Finkelstein to sell down to 5 per cent by 2024. Under questioning, Packer indicated his timing for a sell down could extend to 2026.

Blackstone’s 9.9 per cent holding in Crown came from Packer via Hong Kong businessman Lawrence Ho. In February 2019, Packer received $13 a share for the stake with an option to sell another 10 per cent. But all this fell away when Packer was found to have breached the close association rules and Ho then on-sold the parcel to Blackstone.

The PE giant could well argue that since early 2019 the Crown train wreck, from class actions, to malfeasance that now risks major Austrac and state regulator fines could cost shareholders as much as 50 cents a share, around $380m. And that $12.50 sounds pretty good.

Crown chief executive Steve McCann and his cleanskin management team are working hard to shake off the stigma of three state inquiries. Incoming Crown chair Ziggy Switkowski is a board veteran and has the probity tick from Melbourne regulators, although he awaits the green light from both Sydney and Perth.

It’s a safe bet though that Switkowski is cautioning against rushing into the exclusivity agreement proposed by Blackstone with a four-week intense due diligence at a price of $12.50. As bankers know, once an exclusive due diligence kicks off the mindset moves on to a ‘deal to be done’ at some price. Perhaps a price range is enough to open the kimono.

Steve McCann, the former boss of Lendlease, is highly regarded as an operator. He has also worked closely with advisers on both sides of the mooted takeover.

When Blackstone lobbed in the bid on the evening of 18 November, McCann was quick to bring on board Gresham’s Bruce McLennan as a second bank adviser to UBS’ Kelvin Barry.

A second brains trust is not unusual for large complex deals and McLennan had worked closely with McCann helping to sell the troubled Lendlease engineering business.

Interestingly though, McCann is also close to the banker advising Blackstone, Morgan Stanley’s Richard Wagner. Again the pair have a history of working together in banking.

One saucy theory is that Steve McCann could end up running Crown for Blackstone. Blackstone would have surely begun due diligence on that option.

Blackstone has been on the Crown register since April 2020 when its real estate business, run by Chris Tynan bought the 9.9 per cent stake. James Carnegie runs the private equity side of the business in Australia.

Over 14 months the pair have worked with legal firm Corrs and McGrath Nicol who have been conducting probity checks on Blackstone on behalf of all three state regulators.

This year Blackstone demonstrated just how good it is at turning around, running and growing casinos. In September it sold The Cosmopolitan Resort in Las Vegas for a cool $US5.7bn ($7.9bn), its most profitable asset sale to date.

The Cosmo was bought in 2014, when Blackstone rather ironically beat a bid from James Packer’s Crown. Blackstone paid $US1.7bn and in the next seven years, turned around a business plagued by labour disputes and losing over $US100m a year into the top house of the strip. MGM Resorts is paying $US1.6bn to take over operations of the 3000-room hotel.

Blackstone’s head of acquisition for the Americas Tyler Henritze described the Cosmo investment as flawless execution of an ambitious plan. The PE giant invested around $US500m on more rooms and renovations. If Blackstone succeeds down under, many of the Cosmo staff may well show up in Australia.

Blackstone’s Cosmopolitan deal demonstrates that done right, the payback on broken casinos can deliver a jackpot. Both the Packer camp and the Crown board see this.

Can McCann and Switkowski get the Sydney casino licence back early next year, right the business and lift the share price? Or will the overhang of Packer holding prove too negative and could McCann find himself working for PE?