Oaktree revises bid to buy out James Packer’s stake in Crown Resorts

The third candidate in the bidding war for Crown Resorts is offering to fund a buyout of the billionaire’s shareholding.

Crown Resorts is awaiting regulatory approval to open the gaming floor at its Sydney casino. Picture: Nikki Short

The dark horse candidate in the bidding war for Crown Resorts, Oaktree Capital, has revised its offer to fund a buyout of billionaire James Packer’s major stake in the embattled casino company.

It comes as the Crown board is considering a $12bn merger proposal from rival casino company Star Entertainment Group and shortly after it rejected a revised $8.4bn straight takeover offer from US private equity giant Blackstone, a 9.99 per cent shareholder who is understood to be considering its options regarding a further bid.

On Tuesday, Crown Resorts told the ASX it had received an update on the US investment firm’s April offer to fund a $3bn buyout of “some or all of” Mr Packer’s 37 per cent stake in the company held through his Consolidated Press Holdings outfit on a selective basis.

Mr Packer’s influence over Crown was a determinative factor in the NSW Bergin inquiry’s decision to deem the company temporarily unsuitable to operate its $2.2bn Sydney casino earlier this year.

The inquiry recommended no sole shareholder own more than 10 per cent without regulatory approval.

And although the NSW gaming regulator earlier this year struck a deal with CPH by which Mr Packer can remain a major shareholder through to at least 2024, he is widely viewed to be a seller.

In a statement Crown said the offer was for a $3.1bn facility consisting of two tranches: a $2bn straight loan, and a $1.1bn loan convertible into new Crown shares.

James Packer giving evidence to the Bergin inquiry.

Based on Crown’s last share price of $12.22, Mr Packer’s stake in the company is worth around $3.06bn.

The convertible component would give Oaktree the ability to turn the $1.1bn tranche into new Crown shares at a strike price of $13 in specified circumstances – “including at any time after the first anniversary of the facility provided that the Crown share price is above $13.00,” Crown said. Shares in Crown closed on Tuesday at $12.15, down 7c.

However, the number of new Crown shares issued to Oaktree would be capped at 9.99 per cent of shares on issues, below the shareholding cap recommended by the Bergin inquiry.

The remaining part of the convertible component would be cash settled.

The term of the proposed facility is seven years, with a coupon rate of 6 per cent per annum payable for the first two years and 6.5 per cent for every year thereafter.

Crown Resorts said any selective buyback would be subject to shareholder approval, excluding CPH, as the agreement struck with the NSW regulator limits Mr Packer’s ability to vote on issues impacting Crown.

It also said the Crown board had not formed a view on the merits of the proposal.

Evans & Partners gaming and leisure research executive director Sacha Krien said it wasn’t clear that Oaktree’s pitch offered any benefit to Crown.

“On pricing, the coupon rate of 6-6.5 per cent coupons is above current market rates,” he said.

“Most convertible instruments usually have a lower than market interest rate (sometimes zero) which is offset by the value of the call option exercisable at some point in the future.

“On our estimates, Crown’s earnings yield is 4-5 per cent from FY23 onwards, indicating the facility would be earnings dilutive.”

Mr Krien also said the strike option pricing seemed low.

“The strike price of the option is also low considering the seven-year term of the loan; $13 is only 6 per cent above the current share price.

“If Crown’s board was to conclude that it was desirable to buyout CPH, that is to remove the risk of an overhang of CPH shares, it’s not clear why Crown couldn’t pursue the same strategy on its own at better prices.”

The revised offer also comes as Crown awaits regulatory approval for its Barangaroo casino in Sydney and two royal commissions in Victoria and Western Australia – with the Victorian probe on Friday extended due to the “significant” evidence presented thus far.