After Blackstone Group expressed an interest in taking over Crown Resorts, Oaktree Capital Group proposed funding a $3 billion buyback for the troubled casino’s founder’s stakes. That means Blackstone’s bid of $8 billion for a full takeover is now in trouble, as Oaktree wants to offer a structured instrument to help the casino buy back its owner’s, James Packer’s, 37% stake.
This offer comes only a month after Blackstone’s proposal. So far, Crown Resorts hasn’t shared any details. We do not know for sure what Oaktree’s bid includes and how it would reflect on the casino. Both offers are still being considered.
As you might know, James Packer, the Crown Resorts’ major shareholder, was criticised after an inquiry revealed that his activities, money laundering, for instance, were one of the main reasons why the company was declared unfit for a Sydney casino licence a few months back.
Oaktree’s proposal to remove Packer would open up new possibilities for Crown Resorts, as it would put any concerns at ease without selling the company at pre-coronavirus price levels. Interestingly, Packer would walk away with around $3 billion under his belt, regardless of the accepted proposal. He has stated he’s willing to sell his stake and support the board, no matter what they decide. Packer left the Crown Resorts’ board in 2018.
Many investors called Blackstone’s offer insulting, claiming that it undervalues the company. Interestingly, this wouldn’t be the first time Blackstone purchases a casino company at a lower value. It has a history of doing this, as well as spinning off the company’s property assets for a large profit afterwards.
Nathan Bell, the portfolio manager at Intelligent Investor with Crown shares, has said there isn’t a reason why Crown wouldn’t copy the same strategy once again.
The managing director of White Funds Management, which owns Crown shares, Angus Gluskie, has questioned Oaktree’s offer and claimed that the proposal limits the exposure of the casino but not the exposure of other shareholders. He has also stated that there is a reason why Oaktree does not want some business elements or wants to receive an uplift in return that would be above the return of a regular shareholder.
Ahead of Blackstone’s offer, Crown Resorts shares were priced at $11.85. However, most recently, they have been up 0.5% at $11.97 in mid-session trading.
Regulator Inspection
If you’re not familiar with the case, a government-backed inquiry discovered money-laundering activities connected to Crown Resorts.. They were also linked to criminal organisations. This discovery prevented the resort from getting a Sydney gaming licence just ahead of the grand opening of its casino worth $2.2 billion.
Such discovery has led to further investigations by Perth and Melbourne’s respective jurisdictions, which are still ongoing. Australia's financial crime watchdog (AUSTRAC) is currently investigating the money-laundering claims. On the other hand, two shareholders have filed a lawsuit against Crown Resorts for failing to report operational risks, which has led to major falls in share prices.
The Crown is defending the lawsuit, and its regulator, the Independent Gaming & Liquor Authority, has stated they’re hoping to get the gambling licence back shortly.
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