With all-cash offer for Crown Resorts, will it be third time lucky?

Watching from Argentina is kingmaker James Packer, who still has a 37 per cent stake in Crown that he has agreed to sell down to 5 per cent following the Melbourne inquiry. Picture: Aaron Francis/The Australian

Blackstone’s $8.5bn bid for Crown Resorts is timed perfectly, with a price that must be pitched with some headroom in mind.

The $12.50 all-cash offer from Blackstone delivers certainty for Crown shareholders, who have endured a two-year cascade of revelations on maladministration. It is the third bid this year from the private equity house and 1.5 per cent higher than its second offer made in May.

Is it enough though?

Blackstone would have realised the biggest obstacle for Crown was cleared within about 24 hours of Victorian Commissioner Ray Finkelstein’s report landing with the state government in mid-October. Had Finkelstein recommended stripping the licence from Crown for its disgraceful conduct, it surely would have leaked. But no, this was a slap on the wrist given the behaviour.

The bid also lands during a massive turnover in the C-suite at Crown, with new chief executive Steve McCann knee-deep in the regulator-driven reform agenda.

The new Crown board is not even in place. Chairman Ziggy Switkowski is waiting on a final sign-off, leaving interim chair Jane Halton with one last task.

And new special manager Stephen O’Brien QC, who over the next two years will assess whether Crown Melbourne should keep its licence, is still to be appointed by legislation.

Crown shareholder Steve Johnson from Forager Funds certainly sees the bid as opportunistic and, if the price is right, he will take the all-cash offer. We wait to see if the Crown board accepts a 1.5 per cent bump-up as high enough to grant four weeks of exclusive due diligence.

The message from the Blackstone camp will be: hey guys, we can be in and out in four weeks, sign a binding agreement and give shareholders their money by Easter. If Blackstone does get exclusivity, then the question comes down to price and risk.

Private equity has to see profit from the takeover. That is in their DNA. But Blackstone has been on the register since April last year and it has a breadth of expertise in managing casinos. The royal commission inquiries would have made interesting reading.

Blackstone’s punchy offer to take on the risk of the unfinished regulator business in Perth, Melbourne and Sydney and with Austrac demonstrates it has confidence. The bidder clearly believes it understands that risk and can look through it.

Expect Blackstone to pitch it is the right owner to resuscitate Crown and that while the reforms spelled out by Finkelstein have brought clarity, the heavy lifting is still ahead. It may well argue that some takeover premium is already priced into Crown stock this year. And that since its last bid, Crown has faced a tax underpayment issue and the appointment of a special manager that will demand more remediation costs.

True, there is uncertainty in the sector around cashless gaming, and the whales and junket money have evaporated, but Australia has emerged through Covid-19 as the gambling nation of the world.

From the Crown side, there is far more regulatory certainty than there was six months ago. The Perth hearings are over. Melbourne has not lost its licence and Sydney is far closer to opening. What is more, lockdowns are gone and borders are opening.

When all three casinos are open and operating, shareholders should expect Crown to deliver attractive returns from world-class assets, beyond the pre-Covid-19 earnings peak. McCann is aiming to achieve best practice in regulatory and anti-money laundering compliance.

Of course there is room for other bidders like Las Vegas casino giant Wynn or Star Entertainment to make a return, or other PE players, but Blackstone looks to have read the cards well. Star was a rival bidder earlier in the year and has not ruled out a counter offer, but like Crown it is now distracted with its March 2022 hearings into conduct issues.

So far, the Crown board has chosen not to label the bid as opportunistic.

Watching all this from Argentina is kingmaker James Packer, who still has a 37 per cent stake in Crown that he has agreed to sell down to 5 per cent following the Melbourne inquiry. Accepting an all-cash offer would mark the end of a 15-year interest in the gaming industry for Packer.