Blackstone unlikely to win Crown at current offer price: J.P. Morgan

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Blackstone is unlikely to win approval from Crown Resorts’ board or shareholders with its current A$11.85 bid, J.P. Morgan analysts wrote in a note.

The U.S. private equity firm, which already owns a 9.9% stake in Crown, has offered to buy the Australian operator for $8 billion ($6.2 billion).

Crown has long been seen as a potential takeover target after several unsuccessful attempts at mergers in recent years. One with Melco Resorts & Entertainment, which sold its 9.9% stake to Blackstone for $8.15 a share and another with Wynn Resorts in 2018 when the U.S. operator walked away from talks after they became public. Wynn was offering $14.75.

Now, Crown’s shares are depressed given the double whammy from the Covid crisis and Crown’s regulatory woes, which include being found unsuitable to hold a casino license for its new property in Sydney, and Blackstone has seen its chance to pounce.  

“Based on where CWN (and SGR) were trading prior to COVID-19 (and with the upside potential of Barangaroo) our initial view is A$11.85/sh would be insufficient for approval from shareholders and the board,” J.P. Morgan said. “CWN’s share price is discounted from the pending Royal Commissions, and this bid indicates Blackstone’s valuation for the real estate assets (with the casino licenses as risk-adjusted upside). 

The firm notes that Blackstone’s bid is highly conditional and will also depend on Australia’s notoriously lengthy probity process, which can last up to three years.    

It suggests that potentially, Star Entertainment could step in to manage the casino, which may ease the way.

Reuters’ Breakingviews notes that the bid is a win/win for Blackstone. It argues that the offer may be an attempt to flush out other potential suitors, who would come in at a higher price.

If so, Blackstone would stand to make a handsome return on the price it paid for its own stake and if not, it buys Crown’s assets at a cheap price.

The obvious candidate for an alternative bidder is Las Vegas Sands, which is sitting on a $6 billion cash pile after selling its Las Vegas assets. The firm has said it is looking for growth opportunities and is focused on the Asia Pacific region.

Crown’s stock jumped 21 percent in Monday’s trading to close above the bid price at $11.97, indicating there is an expectation that the story does not end here.