Blackstone rolls the dice with $6.2 billion move on Australia's Crown Resorts
SYDNEY - Blackstone Group Inc proposed a buyout of Australia’s Crown Resorts Ltd in a deal valuing the casino operator at $6.2 billion, a markdown from the troubled company’s value a year ago but a possible reprieve from regulatory pressure.
Crown shares leapt more than 20% after it disclosed the
informal offer on Monday, passing Blackstone’s indicative price of A$11.85 as
investors wagered a bigger payment could be in the offing from the world’s No.
1 private equity firm or another suitor.
“It’s nice to get a bid, and now it’s about price
discovery,” said John Ayoub, a portfolio manager at Wilson Asset Management,
which has Crown shares.
“These stocks are trading at trough earnings and I wouldn’t
be surprised to see further activity in the sector.”
If Blackstone’s takeover were to succeed, it would round out
a portfolio of gambling-related assets from Las Vegas to Spain with resorts in three
Australian cities.
But it would get a company in crisis after Crown lost its
licence to operate a flagship new casino on Sydney’s waterfront last month amid
allegations of money laundering and links to organised crime.
It also faces inquiries in the other two Australian states
where Crown is licensed to operate.
Australia’s financial crimes agency meanwhile is
investigating Crown over money-laundering allegations, and the company faces
two civil lawsuits accusing it of failing to disclose risks which led to share
price declines.
Blackstone’s indicative offer was short of the stock’s
trading levels before concerns about the coronavirus caused market gyrations in
early 2020.
Crown shares closed up 21% at A$11.97. Investors often trade
below an indicative offer price to allow for the possibility of a deal failing
to eventuate.
“Blackstone couldn’t get away with a price like this if the
casinos weren’t being affected by COVID and the management issues at the same
time,” said Nathan Bell, portfolio manager of Intelligent Investor, which has
Crown shares.
“It’s only an opening bid. It’s a messy situation and
offering to acquire a casino is a complex affair at the best of times due to
all the regulation.”
Crown said its board had not yet formed a view on the
proposal but would talk to “relevant stakeholders including regulatory
authorities”.
Company founder James Packer, the top shareholder with a 36%
stake, would receive about A$2.9 billion from the deal.
Packer declined to comment. Blackstone, Crown’s
second-largest shareholder with 9.99%, confirmed the approach but declined to
comment further.
BAD TO WORSE
Packer sold out of casinos in Macau and the United States
and began a series of attempts to take Crown private after 18 staff were jailed
in China in 2016 for violating anti-gambling laws.
Three years later media reports accused Crown of knowingly
doing business with junket - or gambling tour - operators linked to organised
crime, leading to findings at a subsequent regulatory inquiry of
“dysfunctional” management where Packer dominated the board from afar despite
holding no official role.
The inquiry called by the gaming regulator in New South
Wales said Packer’s “remote manouevring” would have to be resolved before Crown
could hold a casino licence in the state, putting the company’s billionaire
founder under immense pressure to sell down his stake.
Crown’s new tourist-targeted Sydney casino opened in
December without tourists due to pandemic-related border closures, and without
gambling because of restrictions put on it during the probe.
It has lost about half its board including its CEO since the
inquiry declared Crown unfit for a Sydney licence in February.
Among the conditions of the Blackstone proposal, the private
equity firm itself would need to be found suitable to run a casino by Crown’s
regulators.
The New South Wales state Independent Liquor and Gaming
Authority said it was aware of the approach but declined to comment further.
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