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Crown plays its cards well with Blackstone

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Crown Resorts Ltd's flagship tower nears completion at Barangaroo, Sydney, Australia, April 17, 2020. Picture taken April 17, 2020. REUTERS/Stephen Coates

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MUMBAI, Jan 13 (Reuters Breakingviews) - It is easy to overplay a good hand, but Crown Resorts (CWN.AX) has kept its cool read more . The embattled Australian gambling group bided its time well and is ready to support a sweetened A$8.9 billion ($6.4 billion) bid from buyout shop Blackstone (BX.N).

Blackstone’s fourth offer, at A$13.1 per share, is roughly 10% higher than its first proposal in March last year. The one-third premium above the undisturbed price is compelling as interest in the company from rival Star Entertainment (SGR.AX) and Oaktree has faded away. It’s also on par with Crown’s pre-Covid-19 price set in May 2019 when founder James Packer agreed to sell a 20% stake to Melco Resorts and Entertainment .

After two years of turmoil, the regulatory outlook for Crown as an independent company is improving. The company expects to offer gambling at its troubled Sydney casino early this year as it works with officials to address governance failures. It’s also won a reprieve to hold onto the licence for a flagship asset in Melbourne, Victoria. Crown’s new management is settling in, providing some much-needed stability at the top.

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The progress removes some of the low-hanging fruit for the potential new owner, though there are still plenty of improvements to make. If Blackstone’s bid firms up and wins all the approvals, the private equity group will have to reimagine Crown’s growth, as wealthy international high rollers once favoured by the casino operator make less of an impact at gaming tables.

Moreover, improved confidence from ordinary shareholders has boosted Crown’s share price since November, when Blackstone tabled its third offer read more . After adjusting for the A$8.15 per share Blackstone paid for a 10% stake in April 2020, the buyout group would acquire Crown at just under 13 times forecast EBITDA in 2023, per Refinitiv. That’s a chunky premium to Star’s roughly 9 times.

Blackstone looks well-placed to maximise returns even after multiple price hikes. It successfully turned around The Cosmopolitan on the Las Vegas strip and doubled its money on Hilton Worldwide (HLT.N), despite buying the chain just prior to the financial crisis. Still, the bigger outlay than originally envisioned is enough to start wondering if Blackstone may be the one overplaying its hand.

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CONTEXT NEWS

- Australian casino operator Crown Resorts said on Jan. 13 it had received an improved takeover proposal from private equity firm Blackstone valuing the company’s equity at A$8.9 billion ($6.4 billion) and that its board was likely to back it unless a higher offer emerged.

- The latest non-binding offer of A$13.10 a share is a 13% premium to the last closing price. The improved proposal was made after considering non-public information during initial due diligence, Crown said.

- Blackstone previously offered A$12.5 a share on Nov.19, A$12.35 a share on May 10 and A$11.85 a share on March 22.

- The proposal is conditional on regulatory approvals in three Australian states. Crown said earlier Blackstone indicated “that there is no reason to believe that an approval would not be realised.”

- Crown shares jumped 8% to A$12.56 by midday local time in Sydney, roughly 0100 GMT.

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Column by Una Galani in Mumbai and Katrina Hamlin in Hong Kong. Editing by Robyn Mak and Thomas Shum.

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