A Bet Three Ways: Australia’s Crown Resorts weighs M&A options

Australia’s second largest casino operator Star Entertainment Group Ltd (SGR.AX) lobbed a takeover approach for Crown Resorts on Monday, the third for the company since it was declared unfit for a Sydney gambling licence in February.

The move gives Crown shareholders – including founder James Packer, who has 37% – three very different propositions to consider. The company has been considered as a takeover target since its shares were battered by regulatory problems and pandemic-related border closures.

It has also been seen as likely to be open to a change of ownership since a regulator pointed to “dysfunctional” corporate governance when it blocked Crown from opening a A$2.2 billion ($1.7 billion) casino in Sydney.

The gaming group is also prized for its attractive assets. Its Sydney casino sits on harbourfront land with close-up views of the city’s main landmarks, and it has vast complexes in the southern city of Melbourne and the western metropolis Perth.

  • Blackstone Group: The global investment giant (BX.N) bought 9.99% of Crown from Hong Kong’s Melco (0200.HK) in 2020, making it the company’s biggest shareholder after Packer. In March, Blackstone proposed to buy the rest of its shares in cash.

What it involves – A$12.35 cash per share, totalling A$8.36 billion.

Upside – cash payment; no antitrust hurdles; experience owning similar assets in other countries.

Downside – Discount to Crown share price in 2019. Crown shareholders miss out on benefits of any recovery.

  • Oaktree Capital Management LP: Crown says the distressed asset turnaround specialist (OAK_pa.N) made an approach to provide up to A$3 billion in financing for Crown to buy back Packer’s stake.

What it involves – Oaktree to provide a “structured instrument” to buy “some or all of the Crown shares” owned by Packer “on a selective basis”.

Upside – Offers Packer an exit and lifts regulatory concern without disrupting the company, no antitrust or foreign investment regulatory hurdles.

Downside – Lack of clarity about how Oaktree’s plan would work and what it would receive; investor concern about a two-tier rescue plan that might give Oaktree preferential treatment; exposure to further regulatory hurdles including possible suspension of state gambling licences.

  • Star: Crown’s Sydney waterfront neighbour proposes an all-shares takeover, creating what it says would be one of Asia’s top casino and tourism portfolios with substantial assets in four states. Star says the deal would bring up to A$200 million of cost benefits, while a sale and leaseback of property would generate more benefits.

What it involves – Star would give Crown shareholders 2.68 of its shares for every Crown share, or A$12.50 per share in cash for up to 25% of the company.

Upside – Star says deal benefits would value its scrip offer at over A$14 per share, more than Crown shares have traded at since 2018; Crown investors get exposure to turnaround once pandemic and regulatory issues lift.

Downside – Limited cash payment, potential antitrust hurdles, exposure to further regulatory hurdles including possible suspension of state gambling licences, Packer may not want Star shares.

($1 = 1.2736 Australian dollars)