The development that US fund Oaktree Capital Management has offered to loan Crown Resorts some $3 billion money to buy out James Packer’s shareholding in the company raises more questions than it answers.
On the face of it, it indicates that there may be more players out there interested in buying into Crown at a time when it is still working through issues with casino regulators in New South Wales, Victoria and Western Australia than Blackstone’s indicative offer of $11.85 a share.
But there are big questions on why Crown shareholders would want to load themselves up with an extra $3 billion in debt, even at a potentially better than market rate, to buy out James Packer’s 37 per cent shareholding in the company.
There are very few details released of the Oaktree proposal which appears to value Packer’s stake at $12 a share (assuming Crown borrowed all the offered $3 billion to buy out all of Packers shares.)
This is the exact amount at which Crown’s shares are now trading on the market.
Packer has made it clear he would like to receive a lot more for his stake in Crown, potentially something closer to $16 a share.
While Packer has long been a seller of his stake in Crown at the right price, last week’s statement from the NSW Independent Liquor and Gaming Authority (ILGA) made it clear that it had reached an agreement with Packer’s private company CPH which could see the company remain as a long term shareholder in Crown if it wanted to, albeit a passive one.
In a regulatory sense – barring some unforeseen revelations to Royal Commissions in Victoria and Western Australia about Packer- there is no pressing urgency for Packer’s stake in Crown to be sold.
All indications are that Crown is slowly working its way through all the issues and will emerge from another tough year will regulatory approval to operate in all three states.
So why load the company up with $3 billion in debt for something it doesn’t need?
And at a time when it is battling the financial pressures of a closed Australia with no international tourists allowed and the prospect of having to run its business in future – even when borders are reopened – without the help of the junket operators who bring in the high rollers from Asia.
In short, it is hard to see what the problem is that the “unsolicited, preliminary, non-binding and indicative proposal” from Oaktree is solving for.
Bizarrely enough, if the proposal were to be considered it would need to get a vote of the non Packer shareholders in Crown.
The next largest shareholder is its current suitor, US fund Blackstone, which could use its 9.9 per cent shareholding to block the proposal.
The idea that the loan would be made in the form of a “structured instrument” implies that it could be a debt for equity arrangement.
If accepted, it could see Oaktree acquire a key stake in Crown of up to 37 per cent at a price which could see control pass without existing shareholders being offered a control premium.
The whole point of Australia’s takeover laws is to force a potential acquirer to make a full bid for a company once it wants to go over 19.9 per cent stake- so that smaller shareholders receive a takeover premium for their shares, above what they could sell their shares for on market.
In the unlikely event that the Oaktree proposal were taken to the next step, the corporate regulators could rightly asked questions about if it meant control would pass without a full bid going to all shareholders.
For its part, Crown knows it is under the regulatory spotlight on many fronts and its board clearly felt the need to release what scant details it could of the proposal to ensure the market was fully informed.
But, coming a full month after Blackstone’s indicative offer, the Crown statement highlight’s the lack of engagement between Crown and Blackstone.
The Crown board has yet to make a public statement on its view of the Blackstone proposal except to say that Crown shareholders can sit tight and don’t have to do anything about it.
By all reports, there has been little or no communication between Blackstone and Crown over its proposal, with Crown clearly pitching for more time to work through its regulatory issues in the hope that its share price can recover and Blackstone waiting, with deteriorating patience, for a response.
Crown clearly would like to see a much higher offer from Blackstone as would James Packer.
Crown shareholders can be forgiven if they find the Oaktree proposal a little confusing.
The question for them is how long the dance can continue between Blackstone and the Crown board before something gives.
Backstone is clearly interested but wont increase its offer until the Crown board makes an official response.
The next few months could well decide its future.
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