Private equity powerhouse Blackstone Inc. (BX) looks set to become the biggest gambling operator in Australia after it made an improved offer for Crown Resorts (ASX:CWN and CWLDY), which the casino company's board said shareholders should accept.
That's unless a better offer comes in...
I've written about this saga a couple times before, in March and May last year, as Blackstone has walked up its offer. The billionaire James Packer is a key figure in the drama, a former fiancé of Mariah Carey and the largest shareholder in Crown Resorts.
Crown saw its gambling license suspended just as it completed the tallest building in Sydney. The 75-floor Crown Sydney opened in December 2020 with a resort hotel, spa and restaurants from Nobu and Epicurean. But it's supposed to have a huge gambling floor that for now stands silent. Blackstone's ownership could get that all back on track, perhaps early this year.
The New York alternative assets specialist is offering A$13.10 per share in cash, which would amount to A$8.9 billion (US$6.5 billion). The latest offer improves by 4.8% on a bid of A$12.50 that Blackstone put forward last November to Crown, which said that bid was not "compelling." Blackstone originally offered A$11.85 a share for Crown in March 2021.
Crown shares are up 8.2% since Wednesday's close following the stronger offer. They ended the week at A$12.59, notably still some ways off the settlement price if it's a successful bid. So it's not a foregone conclusion the deal will close.
Blackstone's proposal is conditional; it comes after initial due diligence late last year and requires unanimous support of the Crown board as well as final approval from gambling regulators in three Aussie states.
After an independent inquiry in the state of New South Wales decided Crown was "unsuitable" to hold a gambling license, the states of Victoria and Western Australia also started investigations into the company and why it was already approved to run casinos in Melbourne and Perth. But its share price has never looked like a gambling operator that isn't allowed to run gambling halls. It's too big to fail, the largest employer in Victoria State, for instance, where it runs the biggest casino in the southern hemisphere.
Not a done deal
The Crown board, in the company's stock exchange filing announcing the bid, said it is "in the interest of Crown's shareholders" to "engage further with Blackstone" on the proposal. That engagement includes full access to Crown's books so that Blackstone can finalize its due diligence and make a binding offer.
Those would be non-exclusive talks, however, meaning Crown could welcome other bids. The rival Aussie casino operator Star Entertainment Group (ASX:SGR and ECHEY) has also bid for Crown in the past, while Oaktree Capital Management tabled a bailout plan. Wynn Resorts (WYNN) spoke with Crown about a buyout in 2019, with a mooted price of around A$14.75, but bailed when those talks became public.
Still, the Crown board said it is its "current unanimous intention" to recommend that investors accept the Blackstone cash, unless Star or another buyer one-ups it. Star, itself now subject to investigation, said in response to Blackstone's latest bid that it remains open to "exploring potential value-enhancing opportunities with Crown."
Blackstone bought a 9.99% block of shares in Crown in April 2020 from Melco, the casino company run by Macau casino operator Lawrence Ho. Crown and Melco formed a joint venture in Macau in 2004, but it was these Macanese connections that led the inquiry in Sydney to conclude that Crown had been "facilitating money laundering" and forming business relationships "with individuals with connections to Triads and organized crime groups."
James Packer lost interest in Chinese expansion following the arrest in 2016 of 16 Crown employees. They had opened an operation to recruit gamblers out of a residential building in the southern Chinese city of Guangzhou, although it is illegal to solicit gambling in mainland China. Ho, who had been looking to double his stake in Crown at A$13 ahead of a potential bid for the company, felt the bad vibes from the Aussie gambling regulators and offloaded the shares to Blackstone at just A$8.15.
Packer's Consolidated Press Holdings owns 37% of Crown, although regulators have indicated they want Packer to sell out. Privately held CPH issued a statement that it is "encouraged by today's announcement and awaits further developments."
Packer, son of larger-than-life media mogul Kerry Packer, was executive chairman of Crown but has stepped down and no longer has representation on the board. James Packer has become reclusive in recent years and blamed bipolar disorder for erratic and threatening behavior while in charge at Crown. The inquiry in Sydney found his influence had "disastrous consequences" over the company, which has replaced almost all its top executives.
The inquiry in Melbourne recommended that Packer reduce his ownership below 5%. Packer's stake would be worth around A$3.3 billion (US$2.4 billion) at the current offer and could see him finally exit the gambling empire that he built.
