Blackstone May Have to Raise Bid for Crown Resorts, Says JPMorgan

Blackstone (NYSE:BX) is offering $6.2 billion for Crown Resorts. But that may not be enough to get the Australian gaming company to come to the bargaining table.

On Sunday, Crown said it received the proposal from the private equity firm, valuing the target at $9.16 a share ($11.85 in local currency. This is a 20.2 percent premium to where the stock closed on Friday, March 19. That was enough to send Crown stock higher by 21.4 percent in Sydney trading. But it may not compel the embattled gaming company to agree to the all-cash terms.

“Based on where Crown (CWN) was trading prior to COVID-19 (and with the upside potential of Barangaroo) our initial view is A$11.85 per share would be insufficient for approval from shareholders and the board,” according to JPMorgan analysts. “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).”

In confirming receipt of the Blackstone bid, Crown did not immediately turn it back. The casino operator said its board doesn’t yet have a view on the proposal, and that it’s starting the process of evaluating the offer.

Win-Win for Blackstone

Blackstone, the world’s largest private equity firm, is in an enviable position regarding the Crown overture. The company owns 10 percent of Crown – the second-largest slice behind founder James Packer. It’s also deep in the money on that stake after acquiring it last year on the cheap from Melco Resorts & Entertainment (NASDAQ:MLCO).

Ultimately, Blackstone can wait things out, betting that a higher offer doesn’t come along, and wind up acquiring Crown outright. The sale would come because the company may decide that amid intensifying regulatory scrutiny in its home market, selling is in the best interest of its investors.

Potential Pitfalls

While Crown is dealing with a slew of inquiries into its suitability to hold gaming permits in Australia, that doesn’t necessarily mean it needs to sell.

JPMorgan says the gaming company could opt to lease its Crown Sydney integrated resort to rival Star Entertainment as it waits to clear regulatory headwinds. That idea has been floated by other analysts, and with Crown’s solid balance sheet, it doesn’t need to run into a sale simply because of near-term pressure.

Additionally, Blackstone or any buyer needs to wait for Australian officials to sign off on suitability. This process could take several years.

One more thing: Crown could simply scoff at the Blackstone overture and say it undervalues the company. After all, Wynn Resorts (NASDAQ:WYNN) offered $7.1 billion for Packer’s company two years ago.