Blackstone’s Offer for Crown Faces a Number of Hurdles

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As Crown Resorts received its first takeover offer from private equity firm Blackstone, the ABC reports that any takeover bid faces numerous hurdles, including negotiating a fair sale price.

Crown said its board had not yet formed a view on the merits of Blackstone’s proposal and would start a process to assess it.

A proposed takeover bid faces numerous hurdles and regulatory risks, including several inquiries into Crown by state-based regulators, looming class actions and financial regulator AUSTRAC investigating Crown for potential breaches of Australia’s anti-money laundering and counter terrorism financing laws.

Blackstone, which manages A$800 billion of assets globally, already owns about 10 per cent of Crown.

The private equity firm has been operating in Australia for 11 years and has invested $14 billion across Australia and New Zealand, predominately in commercial and industrial real estate.

It has a team of about 30 people employed locally.

Blackstone not new to casino acquisitions

Private equity funds take investments from wealthy individuals or other fund managers to buy distressed businesses or discounted assets on the cheap.

They then usually either turn the business around and resell it or split it up and sell the most valuable assets for a profit.

Blackstone sees an opportunity in acquiring Crown’s property assets and has likely weighed up the regulatory risks it knows of so far.

But the offer is at this stage just indicative and non-binding.

This means it is subject to a number of conditions, including making sure the casino is deemed fit and proper to hold its casino licences in Sydney, Melbourne and Perth.

There will also need to be a unanimous recommendation from Crown’s board and a commitment from all Crown directors to vote in favour of the proposal, as well as approval from Blackstone’s investment committee.

Blackstone wants to acquire 100 per cent of Crown and is not new to casino takeovers, having acquired Las Vegas’ The Cosmopolitan in 2014.

It has also bought Spanish gaming hall operator Cirsa in July 2018 for $3.8 billion and in November 2019 acquired the real estate assets of the Bellagio in Las Vegas for 4.25 billion.

In January 2020, it also made an agreement to acquire MGM Grand and Mandalay Bay, with a lease agreement for MGM to continue managing the gambling and resort operations.

Blackstone’s offer of $11.85 per share is pitched at a 19 per cent premium to Crown’s share price since its most recent financial report was released in March.

Crown Resorts share price, following the news of the takeover last Monday, was trading about 18 per cent higher than before the announcement at $11.60.

Blackstone purchases Crown stake at start of COVID-19 pandemic

Blackstone will also likely view its offer as a big premium to what it paid for its Crown stake last year.

Blackstone bought its existing 9.99 per cent stake off Melco Resorts in April 2020 for just $8.15 per share during the initial wave of the coronavirus pandemic.

Crown’s major shareholder James Packer has made no secret of his desire to leave the casino business, in which he owns 36 per cent of Crown.

In 2018, Mr Packer resigned as a director of Crown Resorts for mental health reasons.

He was in negotiations to sell Crown to the American casino group Wynn Resorts in early 2019 but that fell over when details were leaked to the media.

Mr Packer then agreed to sell 20 per cent of the company to Lawrence Ho’s Melco for $1.76 billion, although only half of those shares ever changed hands.

The deal sparked questions about whether Crown was complying with the conditions of its licence with the NSW government, which ultimately sparked the NSW inquiry into its affairs.

It will now be up to Crown’s board and shareholders, especially major shareholder James Packer, to decide if the $11.85 per share offer is high enough.

In a statement to the ASX, Crown said its board had not yet formed a view on the merits of the proposal and would commence a process to assess the bid.

William Brown

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