Monday, May 27, 2024

Why Takeover is Best Option for Crown Resort Shareholders


James Packer will likely sell off his long-standing holdings in Crown Resorts at a more elevated price than what was recently offered by Blackstone. Compared to the sale of his shares via the ill-fated deal with Melco Resorts in 2018, which merely initiated more than three years of regulatory misery and Crown investor suffering.

Blackstone’s recent and conditionally approved offer of AUD 13.10 per share might initiate a new bidding fight for Crown Resorts after both Oaktree Capital and Star Entertainment withdrew their own propositions last year.

Is There Additional Interest in Crown?

Experienced share market analysts have stated that Blackstone had forged ahead with its higher AUD 13.10 per share offer only after a detailed review of Crown’s operating books. This successfully completed exercise should alleviate any fears of an unknown issue occurring to the market.

In addition, a source within Crown Resorts has stated that there has been no immediate movement from any rival bidders. Regardless, this was an option the organization wanted to keep open given the current sound environment for Mergers and Acquisitions. This measure has been augmented by holding the talks with Blackstone as non-exclusive.

Is the Offer Great Value for Existing Shareholders

Skilled stock analysts appear indecisive on whether the Crown takeover bid truly symbolizes ‘acceptable’ shareholder value. They do note, however, that Blackstones’ offer is not at a significant premium or value to the average multiples it has formerly traded. Additionally, they concede that Crown’s revenues composition has modified in recent times. 

In a recent statement to the Australian Stock Exchange, Crown Resorts stated that if Blackstone made a formal and binding offer at their new price of AUD 13.10 per share, and there were no other – and more acceptable – deals on the table, it would be the board’s ‘current unanimous intention to recommend that shareholders vote in endorsement of the Blackstone proposal’.

Nevertheless, all eyes and ears will be on the Crown board in the coming weeks ahead, when they officially disclose to the market how they regard their offer if it is good value (or not).

Extended Government Scrutiny into Casinos

Over the past few years, there has been enthusiastic scrutiny on the casino sector. This was all initiated by the NSW review into Crown and the associated media reports alleging that Crown resorts had partnered with organized-crime-linked junkets. There were also accusations of poor money-laundering controls and ignored staff welfare in China.

The NSW government review confirmed much of the original media report. It declared that Crown Resorts Management was unfit to properly run a casino in the state. They consequently barred them from opening its new Sydney-based Barangaroo casino until it was believed suitable.

This regulatory action triggered inquiries into Crown’s activities both in Victoria and Western Australia. Subsequently, the Victorian royal commission found Crown was unfit to run a casino – but allowed Crown to continue operating under strict provisions, with remedial actions and measures.

However, it is not just Crown Resorts that have been singled out for regulatory scrutiny and intense review. The NSW Independent Liquor and Gaming Authority is also reviewing Star Entertainment Group and its connection with contentious casino junket operators. Public hearings on this matter are set to start sometime this year.

James Packer and Crown Resorts

Regardless of whether Blackstone holds fast with their current bid, or looks to increase it in time, in reality, there is only one Crown shareholder who matters – and that is Mr. James Packer.

Despite his dominant 37 percent Crown shareholding, Packer has been virtually frozen out of the business he previously managed as chief executive chairman. The NSW inquiry, during its investigation, discovered that his influence was so detrimental that Crown was deemed unsuitable for running the casino at its newly constructed AUD 2.2 billion Sydney waterfront resort.

As a result, James Packer only found out about the revised Blackstone offer simultaneously as everyone else did. And a sale to Blackstone would conclude the Packer family’s twenty-three-year relationship with Crown, which commenced with his father – Kerry Packer – declaring plans to attain the original Melbourne casino back in December 1998.

Blackstone’s takeover bid will need formal authorization and approval from the Victorian, NSW, and Western Australian gambling regulators if the sale goes ahead. Quite prudently, Blackstone has made a head start on this outcome by applying for probity clearance nearly a year back.

If the Crown Resorts sale proceeds, then Packer stands to pocket about AUD 3 billion in return for his principal 37 percent Crown shareholdings – held by his private investment company Consolidated Press Holdings.

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