Crown surrenders in the face of private equity giant’s persistence

He has until 2024 to comply with the order, made by the Victorian royal commission into Crown, that he must reduce his holding to less than five per cent and therefore has an effective veto and can play kingmaker in any change of control until then.

Crown’s long-term value is clouded even though the regulatory risks have receded but those clouds are more conventional and shared with the rest of the corporate community than those it weathered last year.

The recession of the risk of losing its licences can be seen in the inverse relationship with Blackstone’s succession of proposals – it started low when there was a real risk Crown might lose its Melbourne licence and has progressively increased its offer as the risks diminished and the ongoing costs of Crown’s past compliance failures (which were egregious) became clearer.

Even as the existential threat was removed, however, the pandemic developed.

Lockdowns and the current “shadow lockdown” by fearful consumers, along with labour shortages and the increased cost of casual labour, are impacting all consumer-facing businesses and leisure and entertainment in particular.

Crown seemed to be on track in both Melbourne and Sydney before Christmas, with improving gaming revenues in Melbourne, the non-gaming operations in Sydney open and the group relatively confident it would finally receive approval from the NSW regulator to commence gaming operations next month.

While the pandemic might be (hopefully will be) a passing phenomenon, business like Crown are peculiarly vulnerable to it.

There would inevitably be a discount in Blackstone’s pricing for the uncertainties of its duration and longer-term effects – as much for the opportunity those near-term uncertainties represent to convince Crown and its shareholder to accept as for any material impact on Blackstone’s view of Crowns’ long-term value.

The end game for Crown is going to be a long one which, after factoring in the current global pandemic-influenced environment, means there is nothing certain about the outcome.

With US monetary policy likely to evolve rapidly this year the market environment to which Blackstone and Crown’s value are so exposed to could change quite dramatically by the time Blackstone completes its due diligence, negotiates a satisfactory implementation agreements with Crown, gets shareholder approval for its offer and then obtains the necessary regulatory approvals to take control of Crown in Victoria, NSW and Western Australia.

Time, in this uncertain and volatile situation, probably equates as much to the risk of Blackstone withdrawing or reducing its offer price as it does to a third party emerging or the board extracting a higher price from Blackstone.

Former Lendlease chief executive Steve McCann, his new chairman Switkowski and the overhauled management team McCann has appointed will be very conscious that, while trying to maximise the exit price for shareholder, there is no guarantee that the Blackstone proposal will end up as a binding bid.

Good management – getting the Sydney gaming rooms open and the hotel’s vacancy rate down, removing the relatively small question mark over Crown’s Perth licence and getting patronage and volumes up in Melbourne while responding to the effects of the Omicron outbreak – is their best strategy for maximising shareholder value whatever the eventual outcome in terms of who controls it, or doesn’t, might be.

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