Blackstone’s claim for the Crown likely to get green light: analysts - 16th January 2022

Blackstone’s $8.87 billion takeover of Crown is looking likely to go ahead. CREDIT: JOE ARMAO

By Jessica Yun and Dominic Powell

Analysts and investors are looking favourably upon Blackstone’s proposed $8.87 billion takeover bid of Crown Resorts and expecting it to go ahead “in one form or another”, while playing down any rival offer from Star Entertainment Group.

The embattled casino group and Blackstone are moving into the final stages of agreeing on a takeover by the private equity firm, which raised its indicative bid from $12.50 to $13.10, with Crown’s board recommending to shareholders that they support the deal.

Already the deal has won support from major investors. James Packer, who has been attempting to offload his stake for years, said he was “encouraged” by Blackstone’s offer and “awaits further developments”.

Ben Clark, a portfolio manager at Crown bondholder TMS Capital, said Blackstone’s latest proposal was “very likely to go ahead in one form or another,” while noting rival The Star had previously proposed a merger of the two businesses.

“If it’s not Blackstone, it’ll be The Star,” Mr Clark told the Sydney Morning Herald and The Age. “I think the Blackstone [offer] has a greater probability of going through because it’s a straight cash bid.”

He noted that James Packer, who remains Crown’s largest shareholder, with 36.8 per cent of voting power, would be looking for a “clean exit” as opposed to receiving shares as part of a combined entity as per the Star merger proposal.

“The sense I get is that he wants a clean break, and to move on from the whole thing,” Mr Clark said. “The cash side of that is going to appeal to him.”

Other major shareholders will likely be thinking along the same lines, he added. “If I was having a bet, I’d say [Blackstone’s bid] is the one that goes through, and very close to the current form it’s in.

“It’s pretty likely to be a straight cash bid at around the price that’s currently on the table.”

Sources close to Blackstone who were not authorised to speak on the takeover were confident the deal would gain approval from both regulators and shareholders, including Mr Packer as the media mogul last sold shares at $13, just below Blackstone’s $13.10 offer price.

The gaming and entertainment group’s share price slid on Friday, finishing the day down 0.47 per cent to $12.59.

They also believe it unlikely that fellow casino operator and bidder Star will come back with a bid capable of toppling Blackstone’s, pointing to the investigation from financial watchdog AUSTRAC, along with potential competition concerns a Star-Crown tie up would cause.

However, some analysts are still expecting Star to return to the table with a new offer.

Morningstar equity analyst Angus Hewitt has assigned a “50 per cent probability” that the Blackstone transaction will proceed.

In note sent to clients in November, the investment research house said Blackstone’s initial $12.50 bid, which Crown rejected, was “unlikely to proceed.” It now says the current $13.10 offer is “more compelling”.

Mr Hewitt’s note highlighted several of Crown’s key strengths, including expectations of strong earnings growth across the next decade, estimations that Crown Sydney will steal market share from rival The Star “almost immediately” and capture 55 per cent of the VIP market share by the 2025 financial year, and a “robust” balance sheet. But the Morningstar analyst also warned of difficulties, including ongoing regulatory headaches, the pandemic’s damaging economic impacts, and travel restrictions.

JP Morgan equity research analyst Don Carducci said that Blackstone’s increased offer of $13.10 was indicative that there were “fewer skeletons in the closet than feared”.

“Given the bidder was granted non-public due diligence, it is noteworthy to see them increase the offer price by ~5 per cent, alleviating the fear of lingering surprises,” Mr Carducci said in a note.

(The Sydney Morning Herald)