A billion-dollar bidding war among three would-be investors has emerged for Australia's largest casino operator, Crown Resorts (CWLDY). That in turn has given its shares another boost. For a company that runs casinos that has been told it's unfit to run casinos, it's doing pretty well.
On Monday, the Blackstone Group (BX) raised its offer price for the company. For good reason, because there are new horses in this race. Also on Monday, rival Aussie casino operator Star Entertainment Group (ECHEY) delivered a competing bid. Oaktree Capital Management (OAK) has lodged a separate plan to rescue the troubled company.
The Star bid would merge Australia's two biggest casino operators, if it goes ahead. Star already runs casinos in Sydney, Brisbane and the Gold Coast, as well as the Gold Coast Convention & Exhibition Centre.
That has prompted the interest of the Australian Competition and Consumer Commission. ACCC Chairman Rod Sims said on Monday that the competition watchdog would look at the deal with "a detailed investigation" and public review. Only the casinos in Adelaide and Tasmania would be owned independent of this group if the two combine.
Star's proposal would keep its casino brands operating and let the Crown properties continue under that name. There would be both a Star and a Crown casino in Sydney if Crown succeeds in its current talks with regulators to reshape management and operations in a way that would land it a license.
A government inquiry in February found that Crown is unfit to hold a gambling license for its new casino in Sydney, where it has built the city's tallest tower. Money laundering, links to Chinese triads and the jailing of 16 of its employees in China for illegally soliciting gamblers were just three of the strikes against Crown in the findings of former judge Patricia Bergin, as I explained at the time.
Its share-price movement did not look like that of a company denied a license for its newest and flashiest property. Crown also runs casinos in Melbourne and Perth, where the regulators basically said, "Hold on, if they're unfit to run a casino in Sydney, why do we let them run one here?" Royal commissions examining that issue started in Perth in April, and in March in Melbourne, with detailed hearings due this month.
Despite that, Crown shares closed up 7.3% on Monday in Sydney trade, and are now trading at pre-pandemic levels despite the COVID-induced woes of the entertainment industry the world over. They are up 31.8% since the bidding began in March.
Typically, shares in a target company rise while the buyer sees its shares fall. But this is one of those rare cases where both boats float. Star saw its shares rise 7.7% on Monday in Sydney. The Star Sydney would face serious competition from a gleaming new Crown casino, so investors clearly think a scaled-up Aussie gambling operator would operate well.
Although it faces severe regulatory pressure, Crown is too big to go under. Crown's casino in Melbourne is the biggest in Australia, and indeed the southern hemisphere. It's also the largest employer, with 11,500 jobs, in the state it calls home, and contributes 12% of Victoria's entire tax income, according to The Sydney Morning Herald.
The saga essentially revolves around Crown's largest shareholder, James Packer, son of the legendary media tycoon Kerry, who at one point rivaled Rupert Murdoch for influence back home. James Packer - who is no stranger to the headlines himself and was briefly engaged to the singer Mariah Carey - would like to offload his 36.8% stake. So his decision will be crucial as to which bid wins.
Packer has stepped back from much of public life, and has been chastened by his efforts to expand into the Macau market, where Crown has now beaten a retreat. He said during licensing questioning in October last year that he has bipolar disorder, and blamed his "medical state" for sending "shameful" and "disgraceful" threatening emails to a banker for failing to support his plans to take Crown private.
Star has offered an exchange ratio of 2.68 shares in Star for each share of Crown. It says that should amount to more than A$14 per Crown share, although it is also offering A$12.50 in cash for up to 25% of Crown's stock, if shareholders don't want Star shares. Star says it should be able to get A$150 million to A$200 million in cost savings per year out of the combined company.
Blackstone said on Monday it was raising its offer to A$12.35 per share, up from A$11.85.
Oaktree in April offered A$3.0 billion (US$2.4 billion) in funding for Crown to buy back some or all of the shares that Packer owns via his Consolidated Press Holdings media group. That, too, was an unsolicited bid.
Crown had an extremely busy Monday. It named a new CEO, Steve McCann, the former group CEO of real estate and investment at the Aussie developer Lendlease (LLESY). That appointment is effective June 1, necessary because CEO Ken Barton resigned in February after the disastrous Sydney licensing review. Five directors have resigned from the Crown board, too, leaving Packer without representation on it.