Why James Packer will want a higher price from Blackstone in Crown Resorts takeover play
If Helen Coonan ever wanted affirmation of the value of the casino assets built by her major shareholder James Packer, she got it in the unsolicited takeover offer for Crown Resorts made by private equity giant Blackstone on Sunday.
Blackstone, which holds a 10 per cent stake in Crown, has made an opportunistic swoop while Crown is in the middle of getting its house in order following the devastating findings of the Bergin inquiry in NSW and as it braces for weeks of hearings of royal commissions in Victoria and Western Australia.
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It was a smart move by the private equity group, engineered by its property tsar Chris Tynan, to time its strike only days before the start of the Victorian royal commission.
Blackstone is essentially saying to the Crown board that the company could convert itself to suitability for its Sydney casino licence and hold onto its licences in Melbourne and Sydney if it has a new owner, a new board and Packer is gone from the share register.
And if the board refuses to engage, its Crown jewel — its Melbourne licence — will be at risk.
Blackstone has had no contact with Packer, Crown’s 37 per cent shareholder, or the company’s institutional investors and simply made the approach directly to Coonan through its advisor Morgan Stanley.
Packer is said to be fond of the way the private equity group does business and has respected the silent way it has conducted itself on the Crown share register over the past tumultuous 12 months for the company.
Whatever happens to Crown’s casino licences in the coming months, its prime properties will be of value to a property player such as Blackstone, especially if it can get them on the cheap.
But the $11.85 per share offer for the whole of Crown, which is subject to a raft of conditions including Blackstone obtaining debt finance for the $8bn plus bid, might also give Coonan some cause for hope that her reform agenda for the casino giant is on the right path.
If Crown can retain its licences in Sydney, Melbourne and Perth, Crown shares are sure to be rerated by investors and Blackstone or a rival bidder will need to pay a fuller price.
Interestingly, after debating the merits of a takeover offer from Wynn Resorts in secret in 2019 before the offer was leaked, the Crown board has gone on the front foot this time in immediately disclosing the approach to the market.
It gets the game going and says to the world that Crown is now in play.
The limited Crown board left in place after a raft of resignations in recent weeks — Coonan, Jane Halton, Toni Korsanos and soon to be departing deputy chairman John Horvath, with new director Nigel Morrison still to pass probity approvals — will be surely after a higher price given the offer is only a 19 per cent premium to the average Crown share price since the result.
But Crown’s institutional investors may believe it is not far off the mark given the current predicament of the company.
Blackstone is likely to push those investors to pressure the board to let the private equity firm conduct due diligence so it can gain some clarity on the status of Coonan’s negotiations with the NSW gaming regulator over its Sydney licence.
It also wants some better sense of the regulatory risk associated with the financial crimes regulator Austrac’s investigations into Crown, the status of class actions and the potential fallout from any potential actions by the Australian Securities and Investments Commission.
This would allow it to be better informed to frame a final offer.
While Coonan remains focussed on her dialogue with the NSW gaming regulator to right the wrongs of the past in order for Crown to retain its Sydney licence, she is expected to seek to start an open dialogue with Blackstone.
Given the billions of dollars Crown has poured into capital expenditure in recent years on its Sydney and Perth properties, James Packer is also expected to be after a higher price.
He will be hoping that Blackstone’s pre-emptive move flushes out any ambitions of potential rival bidders such as Las Vegas sands or Wynn Resorts.
Given the northern hemisphere remains ravaged by COVID-19, Australia’s borders remain closed and the significantly regulatory risks around Crown, that could still be wishful thinking.
Blackstone is in the box seat, with the bonus of having passed also through Nevada’s probity processes by virtue of its ownership of the Cosmopolitan casino in Las Vegas. The status of its probity application to increase its interest in Crown is unknown.
It also owns the real estate assets of the MGM Grand, MGM Mandalay Bay and Bellagio resorts, as well as the European casino operator Cirsa, which has properties in Spain and Latin America.
If a bidding war erupts or Blackstone ups its bid price sufficiently beyond the $12 mark if it is granted due diligence by the Crown board, there is no doubt Packer will act quickly to cash in his chips.
For all the pain Crown has caused him in recent years and the incredibly powerless position he now finds himself in the company which holds most of his wealth, Packer is at least now back in the box seat to dictate its fate.
See James Packer’s latest wealth ranking in The List: Australia’s Richest 250
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