Third time not necessarily a charm for Blackstone’s bid for Crown Resorts

Blackstone’s fresh bid for Crown Resorts saw its share price surge more than 16 per cent on Friday. But will it be third time lucky for the hopeful suitor?

JP Morgan analysts noted the highly conditional nature of the $12.50-a-share takeover offer when assessing the bid, coming to the conclusion Crown is likely to reject the deal on valuation and regulatory concerns. Picture: Getty Images

Blackstone’s fresh bid for Crown Resorts saw its share price surge more than 16 per cent on Friday. But will it be third time lucky for the hopeful suitor? Analysts and fund managers aren’t so sure.

JP Morgan analysts noted the highly conditional nature of the $12.50-a-share takeover offer when assessing the bid, coming to the conclusion Crown is likely to reject the deal on valuation and regulatory concerns.

One of the conditions is Blackstone, which holds a 9.99 per cent stake in Crown, receives approval from casino regulators in Victoria, NSW and WA. Another is Crown Sydney not be prohibited from gaming for a period extending beyond December 31 2022.

“(These conditions) are interesting: WA’s royal commission could stipulate a WA license requires an entity remaining ASX-listed … and Crown’s gaming operations in NSW remain closed (for how much longer?) regardless of Melbourne trading,” the analysts told clients.

Other conditions to the unsolicited and non-binding offer include that Blackstone undertakes exclusive due diligence for four weeks and receives a unanimous Crown board recommendation in favour of the offer. Blackstone also requires final approval from its own investment committees.

“In theory, there should be very little difference between Crown being publicly listed versus being ‘privately’ held,” the investment bank analysts said.

“In practice, there is likely a difference of opinion among: 1) regulator, 2) public-opinion, and 3) respective shareholders.”

The appointment of a special manager during Crown’s transformation period may be enough for regulators or Crown to reject the bid for coming too soon, they warned.

A Victorian royal commission into the gaming giant concluded in October with the commission’s head, former Federal Court judge Raymond Finkelstein, recommending a “special manager” be appointed to oversee Crown’s operations until 2023. Anti-corruption crusader Stephen O’Bryan QC has been named to the role.

“Crown has rejected bids previously due to timing (and price), and we reiterate the additional level of decision-making required for approval,” the JP Morgan analysts cautioned. “Crown and/or the special manager is likely to reject this bid for various and differing reasons … valuation, regulatory, or otherwise.”

Macquarie analysts appear more hopeful, saying the private equity giant’s bid “comes at a time when there is more certainty regarding the Australian casino licences following the Crown Melbourne royal commission”.

“This time, the implied bid multiple of 12.2 times 2023 earnings before interest, tax, depreciation and amortisation is a 32 per cent premium to the mid-range of the long-run trading range (between 7.9 times and – 10.6 times).”

But shareholders may consider the offer too low, they cautioned.

“Investors may see more value in Crown Resorts with more optimism around the domestic earnings outlook despite some regulatory uncertainties with anti-money laundering/precommitment, the return outlook for Crown Sydney, and upside from an (operating company/property company split).”

Investment manager Forager Funds said its initial view was the business was worth more than $12.50 a share. Chief investment officer Steve Johnston on Friday said it was not surprising to see private equity groups showing interest in Crown after the finalisation of the Victorian review into its ­operations.

“Blackstone are saying ‘we will take on a lot of the risk of that sort of stuff’,” Mr Johnson said.

The latest bid is the third Blackstone has lobbed at Crown this year: in March it put forward an $11.85-per-share offer. Following this, the US private equity giant in May offered $12.35 cash per share, again with conditions.

Crown’s board at the time unanimously concluded the revised offer undervalued Crown and was not in the best interests of its shareholders. The regulatory approval conditions were a stumbling block, with the board telling investors there was “significant uncertainty” as to the timing and outcome of the regulatory approval process.