Melco Resorts and Entertainment hits pause on purchase of Crown shares from James Packer

A new probe into Crown and associates delays Melco’s share purchase from James Packer.

Billionaire Lawrence Ho, chief executive officer and co-chairman of Melco Crown Entertainment, left, and billionaire James Packer. Photographer: Justin Chin/Bloomberg.

Melco Resorts and Entertainment has pressed pause on increasing its stake in troubled casino company Crown Resorts as it awaits a regulatory probe into its target.

Melco was to spend about $1.76 billion buying a 19.9 per cent stake in Crown from James Packer’s private investment vehicle Consolidated Press Holdings, leaving the Australian billionaire with a 26 per cent interest in Crown.

The deal was to be done in two tranches, with the first parcel of 67.7 million shares, worth about $880 million, completed after the deal was announced in May. A second tranche of the same size was to be sold to Melco by September 30.

Melco announced on Wednesday night that on the back of a new regulatory probe into Crown and its associates, which follows a series of media reports on Crown’s links to Asian crime gangs, it had agreed with CPH to amend the timing of the second tranche.

“The company and CPH have agreed to allow more time for the relevant Australian regulatory processes to be completed before completing the acquisition of the remaining 67,675,000 shares of Crown,” Melco said in a statement.

“Under the amendment, the company and CPH have agreed to defer the closing of the second tranche shares for a period of up to 60 business days following the completion of the relevant Australian regulatory processes.”

Melco also outlined that if the second tranche was not completed by May 2020, a deadline that either party could extend by six months, the deal for the extra shares could be terminated.

A spokesman for CPH said that the amended agreement also stated that Melco receive written statements from each of the Australian regulators that it is a suitable person to be associated with the management of a casino.

“Whilst CPH does not consider there has been any breach of agreement, licence condition or legislation in connection with the subject matter of the transactions with Melco, it has taken this step in agreement with Melco so the regulatory processes and ILGA Inquiry can proceed in an appropriate manner,” the company said.

Since the deal with Melco was struck, a series of reports linking Crown to Asian crime gangs and money laundering have intensified regulatory scrutiny on the company. Crown has denied the allegations about its connection to criminal activity.

The NSW Independent Liquor and Gaming Authority announced earlier this month that following the reports, it would hold a public inquiry with royal commission powers into Crown and “its close associates”. The regulator had previously granted Crown a licence for its $2bn Sydney casino at Barangaroo.

The regulator said the inquiry, to be led by former NSW Supreme Court judge Patricia Bergin, SC, would examine Crown’s “Barangaroo restricted gaming facility licensee and its close associates”.

Bernstein analyst Vitaly Umansky said that he expected Melco and its chairman Lawrence Ho to clear a probity review and receive regulatory approval for the deal on the merits.

“After all, Melco and Crown had been long-time partners before Crown sold its stake in Melco,” he said.

But the Hong Kong-based analyst added that “recent sensationalistic” news articles in Australia highlighting junket business activity at Crown casinos had led to a heightened politically charged environment.

“There is a risk that in such an environment a Melco acquisition or even the board seat it seeks with the 19.99 per cent interest could be denied by the regulators,” Mr Umansky said.

“This would be unfortunate for both Melco and Australia’s gaming industry.”

The analyst also said that Mr Packer’s hopes of further reducing his stake in Crown Resorts to Melco could be setback by the increased regulatory focus on the casino company.

He said that he believed that Mr Packer hoped to divest his residual position in Crown as soon as feasible with Melco Resorts and Entertainment being the buyer.

“Packer has been looking to reduce his gaming interests for quite some time and Lawrence Ho has commented that a full acquisition of Crown would be attractive,” Mr Umansky said.

“While both have been coy about a complete acquisition, we believe a transaction would have merit.”

Mr Ho told Bloomberg in a televised interview in May — following news of the deal — that it would be his “wish and goal” to move above that initial interest.

The casino boss also noted in the Bloomberg interview that he would need to gain regulatory approvals to increase his stake. But he also highlighted that he went through Australian probity and regulatory approvals when he and Mr Packer first established the Melco Crown partnership back in 2004. That partnership ended in 2017 when Mr Packer sold out of the venture.

Bernstein’s Mr Umansky said that acquiring a minority ownership in Crown was likely Melco’s first step in taking a controlling ownership stake and potentially an outright acquisition of Crown.

The analyst added that politics being what it was, there was no assurance that Melco would gain regulatory approval for a full acquisition in light of both the prevailing China-Australia tensions that exist and the fog surrounding Crown’s links to junkets.

He said that if Melco decided to back away from an acquisition after a negative regulatory review, Crown could be up for sale again.

“We would not discount (previous suitor) Wynn or another company potentially coming back to the table at the right price,” Mr Umansky said in a client note on Melco Resorts and Entertainment.