- »Crown Resorts Battles Gambling Regulator | Blackstone Possible Buyer
Crown Resorts Battles Gambling Regulator | Blackstone Possible Buyer
Blackstone could be Crown’s saviour as analysts trumpet Star merger
As Crown Resorts’ battles with the New South Wales gambling regulator continue, private equity firm Blackstone looks well suited to be a buyer for the operator, should it wish to sell.
Business Times reports the delay of the opening of the $2.2 billion Barangaroo property raises the spectre of authorities withholding the licence altogether.
The company is trying to appease the regulator by shaking up its board, pay practices and corporate culture, while it has vowed to stop working with unregulated junkets that bring high rollers from China.
The year-long inquiry has delved into Crown’s compliance and governance, but last week, fresh evidence of lapses in Crown’s anti-money laundering protocols led to Moody’s downgrading Crown’s credit rating last Friday.
Moody’s Investors Service added to Crown’s woes by downgrading the company’s credit rating one notch to BAA3, just one step above junk status, citing “an increasing likelihood of major downside implications from the escalating regulatory investigations Crown is facing,” not only in NSW but in Victoria and at the federal level.
Finding a new owner might be the best solution for the embattled casino operator, even if it forces Mr Packer to sell the last piece of his family’s empire with the shares down by a quarter over the last year.
He has considered cashing out before, most notably with Wynn Resorts, with talks stalling in 2019.
The billionaire agreed to offload a big chunk of his Crown stake to former joint venture partner Melco Resorts and Entertainment before that unravelled just as the government inquiry commenced.
Blackstone bought a 10 per cent stake in Crown in April and has a track record that suggests it could want more.
It is no stranger to the gambling industry, arranging a leaseback arrangement for the Bellagio in Las Vegas, which farmed out management and risk to MGM Resorts International while it collected steady rent revenue.
Blackstone also sold pieces of Hilton Worldwide during its ownership and profitably broke up Sam Zell’s Equity Office Properties after paying US$39 billion for it in 2007.
It’s lodging nous could help Crown reposition itself in the face of fewer Chinese VIPs.
Credit Suisse analysts explain rationale behind Crown/Star merger
While Crown deals with its struggles, Credit Suisse analysts have said it is worth considering the possibility of a Star/Crown merger in light of both companies’ reduced revenue from the pandemic and China’s clampdown on overseas gambling activity.
The Australian Financial Review reports that the stronger together merge could realise close to $1 billion in value in cost synergies alone, based on Credit Suisse’s $85 million cost out estimate and be done with an all-scrip structure.
Credit Suisse believes both companies’ shareholders could vend their assets into the merged vehicle at fair value and create a group with an expected $1.33 billion EBITDA in the financial year, 2023.
What’s more, they said it could be structured to buy back James Packer’s Consolidated Press Holdings’ 36.81 per cent stake in Crown Resorts, at a time when he may be asked to offload at least part of it.
Credit Suisse said Crown could buy back the stake at $10.35 a share, or 9 times EBITDA for Crown’s domestic casinos, and raise fresh equity to get the merged company’s gearing to about 1.7 times EBITDA.
Such a structure would see Star’s shareholders own 45.6 per cent of the combined group, while Crown’s would hold 54.4 per cent.
The deal would need to be approved by the states and regulators in Queensland, Victoria, NSW and Western Australia, while the ACCC is likely to also be interested.
“Revenues and profit are likely to be diminished relative to pre-COVID levels to FY23 and that, combined with regulatory pressures, may create an opportune environment for a merger between SGR and CWN,” Credit Suisse said in October.