Blackstone Group Tests Crown’s Resolve With $8.5 Billion Bid

It appears American investment company Blackstone Group has not abounded its quest to acquire Crown Resorts. Crown Resorts informed shareholders Blackstone Group has offered $8.5 billion for the casino giant.

Blackstone Group offered $8.02 billion for Crown earlier this year but Crown rejected the proposal. The cash-rich investment group already owns 9.99% of Crown’s stock having purchased it from Melco Resorts’ Lawrence Ho. The company paid Ho $8.05 per share, but this latest offer values Crown shares at $12.50 each.

This is the third approach for Crown by Blackstone Group. A second, higher offer came in May, two months after Crown rejected the first bid. Interest in Crown had waned with the possibility of it losing its Melbourne casino licence. However, the Royal Commission allowed Crown to keep its licence despite significant shortcomings in how it operates. Being able to continue gambling operations makes Crown an attractive target, hence the third bid from Blackstone Group.

Crown Details Blackstone Group $8.5 Billion Offer

Any company on the Australian Stock Exchange (ASX) is required to formally announce any activity that could affect its share price.

“Crown Resorts Limited announced that it has received an unsolicited and non-binding proposal from a company on behalf on funds managed and advised by Blackstone Group and its affiliates, to acquire all of the shares in Crown by way of a scheme of arrangement at a price of $12.50 cash per share. The offer price will be reduced by the value of any dividends or distributions declared or paid by Crown.”

“The proposal follows previous acquisition proposals made by Blackstone Group of $11.85 cash per share as announced to the ASX on 22 March 2021 and $12.35 cash per share as announced to the ASX on 10 May 2021.”

Blackstone Group has, unsurprisingly, inserted some clauses into its proposal. These relate to Crown Resorts’ casino licences. The company will pull out of any deal if Crown Melbourne loses its casino licence or has sanctions placed on it. Furthermore, the same is true regarding Crown Sydney, which is currently unable to operate its casino. Blackstone Group set a deadline of 31 December 2022 for Sydney to begin operations.

There is uncertainty about Crown Perth, too.

The Finances Behind the Deal

Blackstone Group is a cash-rich investment company. Its latest financial figures show it has US$11.5 billion of cash. In addition, the company has US$2.3 billion of undrawn credit at its disposal. The Group plans to finance the transaction through a combination of debt and equity.

While the group has the available cash to purchase Crown Resorts outright, doing so is very unlikely. Purchasing Crown with cash leaves the company with US$5.35 billion. This is a huge sum, but then limits Blackstone’s ability to fund any future major takeovers.

“Blackstone has indicated that the proposed transaction would be funded through a combination of debt and equity. Blackstone would provide equity financing for the proposed transaction through one or more of its affiliated funds and the proposed transaction would not be subject to any financing condition. In formulating the offer price, Blackstone has assumed that Crown remains in compliance with its banking covenants and is not downgraded below the credit rating as announced to the ASX on 29 October 2021.”

Will Crown’s Board Accept The Offer?

It is standard for board members to keep their cards close to their chests during takeover talks. Crown’s board is following that trend.

“The Crown Board has not yet formed a view on the merits of the proposal. It will now assess the proposal, having regard to the value and terms of the proposal and other considerations. It will also engage with relevant stakeholders including regulatory authorities.”

“Crown shareholders do not need to take any action in relation to the proposal at this stage. There is no certainty that the proposal will result in a transaction.”

The offer will go to a shareholder vote if the Crown board deem the offer suitable. Crown shareholders have endured a roller coaster of emotions and financial swings over the years, making a yes vote much more likely.