(Bloomberg) – Blackstone Group Inc. offered to buy Crown Resorts Ltd. in an A $ 8.02 billion ($ 6.2 billion) deal, attacking the troubled Australian casino operator while it was under attack by domestic regulators .
The New York-based private equity firm, which already owns 10% of Crown, offered A $ 11.85 per share in cash for the rest of the company, Crown said on Monday. Crown is evaluating the proposal and its shares soared 21% to A $ 11.97 at the close of negotiations in Sydney, indicating that investors expect a higher bid or a rival bidder.
Crown was found last month inadequate to run its new Sydney casino after years of money laundering on other properties, and faces investigations into its suitability to own casinos in Melbourne and Perth. But if Crown’s planned corporate reform can appease regulators, the prize for Blackstone is clear: casino monopolies in two Australian cities and a glittering A $ 2.2 billion resort on Sydney’s waterfront.
With a history of decades of investment in hotels and games, Blackstone is now folding into one of the industries most affected by the pandemic – just as vaccines fuel hopes for a recovery in travel and leisure. Last week, Blackstone partnered with Starwood Capital Group and struck a $ 6 billion deal for hotel operator Extended Stay America Inc. In 2019, Blackstone agreed to buy the Bellagio casino and resort in Las Vegas for $ 4.25 billion.
For James Packer, Crown’s largest shareholder with a 36% stake, Blackstone’s offer represents a new chance to leave Crown after at least two failed attempts to find a suitor. The blunt February exposure of widespread managerial and cultural flaws at Crown was just the last blow for the billionaire, who left corporate life to fight a mental health battle.
Prior to Blackstone’s offering, Crown’s shares had fallen by almost a maximum of A $ 18 in early 2014. They were hit by a series of dramas, including a 2016 legal crackdown in mainland China, an aborted takeover and the Covid-19 pandemic.
The risk for Blackstone is that it has become the property of a company harmed by new regulatory action. The New South Wales investigation last month said that Crown needed to review its management, governance and culture before game operations could begin in Sydney. CEO Ken Barton and five other directors have since resigned.
The investigation found that Crown “enabled and facilitated” money laundering through bank accounts linked to its Perth and Melbourne casinos for at least five years before 2019. The report garnered criticism about the relationship between Crown and the company Packer’s investment strategy: the reporting lines were confusing, risks were not identified and potential conflicts or conflicts were not recognized.
Read more: Packer casino dream dashed like crown deemed unsuitable for license
A spokesman for the NSW Independent Licor and Gaming Authority said on Monday that the regulator was aware of the takeover approach, but “is not in a position to comment on any potential results”.
An investigation begins Wednesday on Crown’s suitability to run its Melbourne casino and a separate investigation on Crown Perth will also take place this year. This means that Blackstone may be the new owner of a company that is barred – at least temporarily – from operating its three Australian casinos.
“It is a material risk to be considered,” said Xinning Xiao, senior professor of accounting at the Monash Business School in Melbourne, specializing in corporate governance. “Restructuring can take years.”
Game regulators’ representatives in Victoria and Western Australia did not immediately comment on Blackstone’s potential ownership of Crown.
What Bloomberg’s opinion says:
By bringing in its own management to run the show – the normal course of business for most private equity acquisitions – Blackstone would automatically be undertaking the wholesale management restructuring that Crown is likely to need if it wants to retain its gaming licenses after a conviction money laundering investigation.
–David Fickling. To read the column, click here
Previous efforts to reach an agreement involving Crown have come to nothing.
Wynn Resorts Ltd. in early 2019 abruptly ended negotiations to buy Crown for around A $ 10 billion, just hours after discussions leaked to the media. Last year, Melco Resorts & Entertainment Ltd. broke a deal to buy 20% of Packer’s Crown.
Analysts at Macquarie Group Ltd. said last year that a merger of Crown with rival Star Entertainment Group Ltd. in Sydney could hypothetically “create significant shareholder value”, although none of the companies had publicly addressed the idea.
A representative of Packer’s private investment firm declined to comment on Blackstone’s approach.
Blackstone wants unanimous approval from Crown’s board before the deal can proceed, as well as permission from regulators to own and operate Crown casinos, according to the statement.
Blackstone bought its current stake in Melco’s Crown last year for A $ 8.15 a share.
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