Crown Resorts’ shares surged 16.5 percent on Friday following a sweetened takeover from the Blackstone Group, but the stock failed to reach the offer price given the regulatory uncertainty and conditions attached to the bid.
According to a note from J.P. Morgan, the “market is clearly conscious of the potential conditions and risk given the share price is trading well below the bid.”
Blackstone has offered A$12.50 a share in cash, up from its prior offer of $11.85. The stock closed at $11.54 on Friday.
The U.S. equity firm said it is prepared to proceed with the proposed transaction upon receiving final confirmation of suitability from each of the casino regulators in Victoria, New South Wales and Western Australia, and said it has engaged with the regulators in relation to the issue already.
The private equity firm also noted that the inquiries into Crown Resorts by the Perth Royal Commission, the consultation process with the NSW Independent Liquor and Gaming Authority, and the legislation to implement recommendations from the Victorian Royal Commission is yet to be passed, whilst investigations from AUSTRAC are not yet completed. Blackstone said the outcomes of these may impact the proposed transaction.
J.P. Morgan notes that the regulators may deem the bid to be too soon in Crown’s transformation, including the additional complication of a special manager in the decision-making process.
A Royal Commission inquiry into Crown’s business in Victoria found the company unsuitable to hold its license for its flagship Melbourne property, but stopped short of stripping the permit from the operator altogether. Instead, the inquiry recommended the appointment of a special manager to control the group and oversee its corporate reforms aimed at regaining suitability.
“Crown (and/or special manager) is likely to reject this bid for various and differing reasons…valuation, regulatory or otherwise,” it said.