$8 billion opportunity knocks at Crown Resorts

Crown Resorts ASX CWN Blackstone
Blackstone currently holds a 9.99% stake in Crown which it acquired from Melco Resorts & Entertainment for $8.15 per share in April 2020.

Sometimes opportunity only knocks once so there is no surprise that private equity giant Blackstone has pounced on troubled casino giant Crown Resorts (ASX: CWN) with a highly conditional $8 billion takeover bid.

While there is no guarantee that Blackstone will succeed, its move puts the casino group firmly into play due to a series of related overwhelming crises that has suppressed the share price.

First among these is the difficulties caused by major shareholder James Packer, who effectively can’t remain at the group after the fallout from the NSW Bergin Inquiry.

Bergin inquiry led to a mass clean out

That 18-month examination by former Supreme Court judge Patricia Bergin ruled Crown unfit to hold the licence for its new $2.2 billion casino at Sydney’s Barangaroo after finding it had allowed money laundering and criminals to infiltrate its Melbourne and Perth casinos.

Since then, the Victorian and Western Australian state governments have launched royal commissions to examine whether Crown should keep its casino licences in those states.

There has also been a mass clean out at the board and executive level, with five directors departing along with the chief executive but the departure of James Packer is more problematic.

James Packer holds key to any successful takeover

Mr Packer holds the key to the share register and control with his remaining cornerstone 37% shareholding and he has tried and failed to sell his stake in Crown or to privatise the group several times without success.

He was negotiating with the US casino group Wynn Resorts in early 2019 but that deal fell apart when details were leaked to the press.

Mr Packer also agreed to sell 20% of the group to Hong Kong casino group Melco Resorts for $1.76 billion but only half of those shares changed hands.

Hong Kong share sale helped to trigger inquiry

That transaction helped to trigger the damaging Bergin inquiry and Melco later sold its stake to Blackstone in April last year.

Both of those prior deals were at a premium to this proposed takeover, which is priced at $11.85 a share, with Wynn said to have offered $14.85 a share and Melco $13. Although, beggars can’t be choosers when there are so many regulatory issues surrounding Crown.

New owner could help Crown keep casino group intact

However, a new owner for the group who doesn’t have any problems fitting the ‘fit and proper person’ test could usher in a new opportunity for Crown to make a fresh start and keep its casino empire intact.

Crown was also hit hard by the COVID-19 pandemic which forced it to shut its casinos, with the closures and the Bergin inquiry seeing the share price plunge from $12.10 in early 2020 to as low as $6.12.

The lack of offshore high rollers has also dampened the casino group’s earnings.

The proposed $8 billion takeover offer represents a 19% premium to Crown’s average share price since 18 February, although on Monday after the offer was announced, the shares were trading close to the bid price.

In an ASX statement, the Crown board said it had “not yet formed a view on the merits of the proposal.”

“It will now commence a process to assess the proposal, having regard to the value and terms of the proposal and other considerations.”

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