Crown said its board had not yet formed a view on the merits of the proposal and would start a process to assess it.
But the proposed takeover bid faces a number of hurdles, and regulatory risks abound.
These include several inquiries into the Casino giant by state-based regulators, including two royal commissions, looming class actions and financial regulator AUSTRAC investigating Crown for potential breaches of Australia’s anti-money laundering and counterterrorism financing laws.
What is Blackstone and why is it interested in Crown?
Blackstone, which manages $US619 billion ($800 billion) of assets globally, already owns about 10 per cent of Crown.
The private equity firm has been operating in Australia for 11 years and has invested $14 billion across Australia and New Zealand, predominantly in commercial and industrial real estate. It has a team of about 30 people employed locally.
Private equity funds take investments from wealthy individuals or other fund managers to buy distressed businesses or discounted assets on the cheap. They then usually either turn the business around and resell it or split it up and sell the most valuable assets for a profit.
Blackstone sees an opportunity in acquiring Crown’s property assets and has likely weighed up the regulatory risks it knows of so far.
But the offer is at this stage just indicative and non-binding.
This means it is subject to a number of conditions, including making sure the casino is deemed fit and proper to hold its casino licences in Sydney, Melbourne and Perth.
There will also need to be a unanimous recommendation from Crown’s board and a commitment from all Crown directors to vote in favour of the proposal, as well as approval from Blackstone’s investment committee.
Why is Blackstone offering a premium?
Blackstone wants to acquire 100 per cent of Crown.
It is not new to casino takeovers. Blackstone owns a casino resort called “The Cosmopolitan” in Las Vegas which it acquired in 2014.
It also bought Spanish gaming hall operator Cirsa in July 2018 for $3.8 billion, and in November 2019 acquired the real estate assets of the Bellagio in Las Vegas for $4.25 billion.
In January 2020 it also made an agreement to acquire MGM Grand and Mandalay Bay, with a lease agreement for MGM to continue managing the gambling and resort operations.
Blackstone’s offer of $11.85 per share is pitched at a 19 per cent premium to Crown’s share price since its most recent financial report was released last month.
Crown Resort’s share price, following the news of the takeover on Monday, was trading about 18 per cent higher than before the announcement at $11.60.
Blackstone will also likely view its offer as a big premium to what it paid for its stake in Crown last year.
Blackstone bought its existing 9.99 per cent stake off Melco Resorts in April 2020 for just $8.15 per share during the initial wave of the COVID-19 pandemic.
Why would Crown’s shareholders, including James Packer, want to sell?
Crown’s major shareholder James Packer has made no secret of his desire to leave the business. Mr Packer owns about 36 per cent of Crown.
In 2018, Mr Packer resigned as a director of Crown Resorts for mental health reasons.
He was in negotiations to sell Crown to the American casino group Wynn Resorts in early 2019 but that fell over when details were leaked to the media.
Mr Packer then agreed to sell 20 per cent of the company to Lawrence Ho’s Melco for $1.76 billion, although only half of those shares ever changed hands.
The deal sparked questions about whether Crown was complying with the conditions of its licence with the NSW government, which ultimately sparked the NSW inquiry into its affairs.
What happens next?
It will now be up to Crown’s board and shareholders, especially major holder James Packer, to decide if the $11.85 per share offer is high enough.
In a statement to the ASX on Monday, Crown said its board had not yet formed a view on the merits of the proposal and would commence a process to assess the bid.
“There is no certainty that the proposal will result in a transaction,” Crown said, noting that it has appointed UBS as financial adviser and Allens as legal adviser.
The outcome of the takeover bid will also depend on where regulators go with this — whether Crown can retain its licenses in Sydney, Melbourne and Perth.
Victoria has launched a royal commission into Crown Resorts’ flagship Melbourne casino just weeks after the Bergin Inquiry in NSW found that Crown is currently unfit to hold the licence for its new $2.2 billion casino on Sydney Harbour.
Western Australia has also launched its own royal commission into Crown Perth.
Blackstone will need to do its due diligence and get a better sense of other regulatory risks, including financial crimes regulator AUSTRAC’s investigations into Crown.
The outcome of the takeover bid may also depend on the status of class actions against Crown, and the possibility of potential actions from Australia’s corporate watchdog against its directors.
The NSW inquiry may send evidence it has uncovered about former Crown Resorts executive chairman Rob Rankin to the Australian Securities and Investments Commission (ASIC) to investigate a possible breach of directors’ duties.