Over more than 50 days of swashbuckling hearings, former NSW Supreme Court judge Patricia Bergin did a stellar job pulling apart Crown Resorts on behalf of the normally ineffective Independent Liquor and Gaming Authority (ILGA) of NSW.
Bergin produced some searing recommendations but stopped short of proposing a blanket 10% share cap on all investors, which is similar to what applies at Crown’s rival Star Entertainment. Instead, Bergin gave controlling shareholder James Packer some wriggle room by proposing that the ILGA must approve any shareholder who owns more than 10%.
During his evidence, Packer clearly felt that a hard 10% cap was coming, so he must have been mightily relieved when the ILGA went to water last week and struck a deal which allows him to keep his 37% stake.
Sure, he is not allowed to have any nominees on the board or gain special access to inside information, but these restrictions only apply until October 2024.
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It now seems a little odd that all these private equity predators are still sniffing around Crown when Packer is no longer a forced seller.
New York-based private equity giant Blackstone already owns 10% of Crown and has lodged an indicative takeover offer priced at $11.85.
Yesterday a rival US private equity bidder emerged in Oaktree, which was offering up a $3 billion “equity instrument” which would then supposedly fund a buyback of Packer’s 37% stake. This is complicated because all the non-Packer shareholders would have to vote on such a deal and they would be unlikely to agree to a price that would satisfy Packer, especially now that he is no longer a forced seller.
Despite repeated attempts, the only Crown sale Packer has achieved so far is a 10% parcel to Lawrence’s Ho’s Melco, priced at $13 a share and bringing in a tasty $880 million. This settled on June 6, 2019, just five days after the deal was signed with no pre-approvals sought from regulators.
Just a few weeks later, Nine’s 60 Minutes dropped its “unmasking” bomb on Crown. Then on August 8 the ILGA moved to appoint Patricia Bergin to conduct an inquiry into Crown’s suitability to hold a licence.
Packer agreed to relieve Melco of it obligation to pay another $880 million for its second 10% parcel in February last year. Then, in April 2020 as COVID almost brought Melco to its knees, Lawrence Ho flicked his residual 10% Crown stake to US investor Blackstone at $8.15 a pop, crystallising a bruising 37% loss worth $328 million.
Does anyone really think Blackstone or any foreign company is a suitable party to buy Crown for $10 billion given the sensitivities around Crown’s casino business? Private equity groups are rarely long-term holders, so Blackstone would simply seek to re-float Crown a few years down the track or flog it to a rival foreign casino operator, which would probably also struggle to win the backing of all the state governments.
The ASX is the most transparent place where Crown should be owned, it just needs to become a normal company with no controlling shareholder.
With Packer still hanging around and Crown’s share price recovering courtesy of the Blackstone bid, the board should take the opportunity to dilute Packer by doing a 15% institutional placement which would bring in more than $1 billion.
If backed-up by an uncapped $30,000 share purchase plan for Crown’s 60,000 retail shareholders at the placement price, or a 5% discount to the prevailing market price, a further $500 million could be raised.
Forget about Oaktree financing a Packer buyback, this capital raising would give Crown itself the financial capacity to offer Packer a buyback which could reduce his stake down to less than 10%.
I also like the idea of the three state governments that have partnered with Crown — Victoria since 1994, WA since 2003 and NSW at Barangaroo — being given the opportunity to buy up to 10% of the company and appoint a nominee to the board. It would be fine if they carved up the Packer stake between them.
Given that the three states are together expected to pocket more than $300 million per year in tax revenue from Crown, it makes sense to extend what is effectively already a profit-sharing joint venture to formal equity stakes with board representation.
It would also give the captured state regulators and governments skin in the game and make them more responsible for small matters such as industrial scale money laundering.
Whatever happens, it’s time for these governments to step up and tell both James Packer and US private equity firms to forget about controlling Crown.
No single shareholder should own more than 10%. If Packer won’t voluntarily sell down to institutional investors then the governments need to make it happen.
Unfortunately, the ILGA and the NSW Coalition government dropped the ball, so it’s now up to the Labor governments in Victoria and WA to step up on the back of their coming Crown royal commissions, which will report back in August and November respectively.
Should state governments push harder for Packer to loosen his control of Crown? Let us know your thoughts by writing to firstname.lastname@example.org. Please include your full name to be considered for publication in Crikey’s Your Say section.