Crown Resorts sale to Blackstone brings end of an era for James Packer

Crown resorts owner James Packer in Melbourne. Picture: Aaron Francis

The $8.9bn sale of Crown Resorts to private equity group Blackstone will close a chapter in Australian corporate history that matches the best of them from the late 1980s and 1990s – Alan Bond, John Elliott and Kerry Packer.

Crown chief executive Steve McCann’s real achievement in just nine months has been to reset the gaming group’s disastrous relationship with regulators, reducing uncertainty and hence adding value.

On Monday the board endorsed Blackstone’s $13.10 per share cash bid. McCann has played a solid game for shareholders, rebuffing Blackstone’s early bids and lifting the price they will receive by almost 10 per cent from the first approach at $11.85 a share.

The news comes ahead of Thursday’s half-year results after which McCann launches into a roadshow to convince investors that $13.10 is indeed the Goldilocks price they should all take.

The deal, expected to go through in May, assumes a green light from shareholder and regulators and from Crown’s largest investor, James Packer, who owns 37 per cent through his family company Consolidated Press Holdings.

For Crown, this is the end of 15 years of public listing on the stock exchange and associated investment scrutiny. For Packer it will finish a long and controversial run in casinos.

Crown has faced blistering criticism after three state inquiries, one of which, in Western Australia, has yet to report.

After a series of scandals including dubious Asian junkets and Austrac investigations around alleged money laundering, regulatory risk has punished operations and smashed the share price.

Both the board and management at Crown have been cleaned out. McCann set about a change in culture from the top down, reshaping and raising compliance to address regulator concerns.

Crown is still waiting for its gaming operating licence in Sydney to be lifted.

The board, under new chairman Ziggy Switkowski, has only a short life until a sale is approved but fresh directors played an important part in reputational repair that helped the board push back on price.

For the Blackstone team, headed by Chris Tynan, Crown brings an opportunity to spread the firm’s global gaming operations into the Asia Pacific, a region well known for its love of playing the odds with big money. And at the punter level, Australia leads the world in gambling.

The Sydney gaming licence, assuming it is granted and Covid-19 restrictions subside, will be a licence to print money.

Blackstone’s challenge is to find the value the market saw in Crown in 2014 when the share price was over $17. The slide began when gaming fell away in Macau which hit Crown through its investment in Laurence Ho’s Melco Resorts in 2015.

The next year, 18 Crown staff were arrested in China and progressively board and management seemed to lose hold on probity.

Like other assets including Sydney Airport, Crown is being sold on the cusp of recovery as Covid-19 abates.

In the end the board’s view of a compelling offer that balances risk and reward for shareholders has been settled at $13.10 per share.

The deal is dead in the water however, unless Packer agrees to sell his 37 per cent stake, the largest single investment he has. In 2019 Packer was prepared to sell his shares at $13 in a 19.99 per cent sale to Melco. Back then the business seemed in better shape.

Steve McCann told The Australian there was clearly a timeline imposed on CPH to sell shares and the business would be under some pressure to do so.

“If they were to vote no, we would try where we could to shore up value in the interim, including considering other alternatives or trying to get to a point with Blackstone where they would vote yes. That will be something that CPH will play close to their chest for a while yet I would imagine,” he said.

Yet the counterfactual looks bad for Packer. He has committed to sell down his stake, yet he cannot block trade his way out because of property restrictions imposed on large single shareholders. If Blackstone walks the overhang in the stock will press the share price lower.

Packer is not credited enough for the success of his media exit, including his sale of Nine to private equity in 2006. This time he has his back to the wall.

Early on in the bid process CPH appeared open to going with the Crown board recommendation. That become more difficult to interpret after CPH appointed Moelis as advisers.

The May timetable could also be extended. While Blackstone has been working with Foreign Investment Review Board on approval and a thumbs up is expected, an election campaign that puts the government in caretaker mode may delay a decision.

Any sale will be a sobering closure for Packer who took the bold move to move the family empire from media to casinos and went global. His passion continued in the build of Crown Sydney, the city’s most luxurious development at Barangaroo.

The fate of Crown’s recently on-boarded executive team is unclear, with Blackstone looking to bring at least some of its people across after it recently sold the giant Cosmopolitan hotel and casino in Las Vegas. No doubt contracts will have been drafted with some prescience.

As for the chief executive, Blackstone could be open to him staying on. McCann insisted that was a question for a later date. “My focus is on getting everything done that we need in order to maximise value for Crown and in working through the transaction. That conversation will take place at a later date no doubt,” he said.

If he does go, McCann cashes in chips of over $5mn in the golden parachute he negotiated with an old board that badly needed the right CEO for a difficult job.