Crown game too rich for wounded Star - January 18, 2022

Crown said it intends to accept the higher offer from Blackstone.

By Elizabeth Knight

Crown shareholders who are expecting or even hoping that Star Entertainment will attempt to outbid Blackstone’s indicative takeover offer for the James Packer-backed casino group will be disappointed.

The $13.10 per share indicative offer that Blackstone delivered to the Crown board last week was the king hit of takeovers in pricing terms.

This game is now too rich for a wounded Star.

Blackstone’s proposal was designed to knock other competitors out of the race - even the large US casino operators who would generally be considered natural corporate predators for the likes of Crown. Many of them are busy dealing with re-licencing issues in the larger and more important Macau market.

So, there was never any chance that the Crown board was not going to look favourably on Blackstone’s offer.

Of course Crown was going to engage with Blackstone, welcome it in to look at Crown’s detailed financials and recommend the deal to its shareholders. It was a no-brainer.

Had the Crown board been any less than welcoming to Blackstone, they would have been run out of town by shareholders wielding pitchforks and Packer would have been at the head of the pack.

Packer’s delightfully understated response to the offer said he was “encouraged” by Blackstone’s announcement. More than likely Packer’s private response (and that of the Crown board) would be air-punching exuberance.

It’s a price that Crown hasn’t seen since 2019. Since then, a series of legislated changes have been proposed or enacted that will eat into its earnings. In addition, casinos have been badly disrupted by the pandemic for two years.

This must be a Eureka moment for Packer.

Blackstone’s generous deal also works beautifully for Crown’s new(ish) chief executive Steve McCann who officially started in October. If Blackstone successfully acquires Crown and its listing is removed it provides a trigger for McCann to receive a $5 million-plus one-off payment. This is regardless of whether he is re-employed by Blackstone to run Crown’s casino operations.

Meanwhile, not only is Blackstone’s indicative price generous, it is also exquisitely timed. At $13.10 the stakes are now too rich for Star to re-enter the race.

Star could only ever contemplate a scrip deal - where it offered its own shares to pay Crown shareholders. Star’s share price has fallen since it made (and later withdrew) a lower offer for Crown last year.

If Star re-entered the fray at these lofty prices, its own shareholders would be significantly diluted and would aim THEIR pitchforks at the Star board.

COVID certainly hasn’t helped Star over the past eight months, with temporary closures, social distancing, staff shortages and border closures eating into cash flow and applying pressure to its balance sheet.

Just as importantly Star has been placed in an unofficial corporate holding pattern by regulators who will publicly examine the company in March around money laundering issues. The outcome will likely not be known until the middle of the year.

Blackstone has seized that opportunity to deliver the indicative offer to Crown in the hope that it can wrap up a deal with Crown shareholders by May.

Realistically the only way Star could get back in the game is if Blackstone walks away from the $13.10 price and presents Crown with a revised lower price.

This could happen if it doesn’t like what it uncovers during due diligence. It could also baulk at the deal if the new regulatory settings, which included the imposition of an independent board, do not allow it sufficient control over Crown’s operations.

Packer will be desperately hoping that Blackstone stays the course with its current indicative price. He was a seller of Crown before the regulatory wreckage and the pandemic damage.

And despite Packer’s mistakes, history has shown the timing of his asset sales to be pitch perfect.

(The Sydney Morning Herald)