The regulatory ructions have not gone away, but with the Crown Board accepting Blackstone’s bid for the company, it seems likely James Packer will fold his cards too.
The Board of CWN has announced it will enter into a Scheme Implementation Deed and is unanimously recommending that shareholders accept the $13.10 per share bid from Blackstone.
A superior bid seems unlikely meaning that CWN is headed for private ownership after separately listing from PBL in November 2007.
CWN’s major shareholder, CPH (James Packer) is likely to accept the Blackstone transaction ending Mr Packer’s long and storied association with CWN.
Blackstone’s ownership is subject to FIRB approval as well as various state regulatory authorities. Blackstone’s existing 10% shareholding has already been scrutinised and should ease the approval process somewhat, but it may still take some months to finalise.
Shareholders will receive an Explanatory Booklet in March/April including an Independent Expert’s report, with a Scheme Meeting expected to be held in the second quarter of calendar 2022.
The only caveat to the deal completing could be ‘material adverse changes’ that might impact the value of CWN’s net assets by at least $750 million, as stipulated in the Deed.
Additionally, we expect CWN to cop a sizeable fine (up to $500 million?) from AUSTRAC for its multiple AML breaches.
CWN’s regulatory inquisitions are nearly complete with the Perth Casino Royal Commission expected to present its final report in March.
The extensive laundry list of investigations has placed a heavy toll on CWN’s corporate costs which are expected to be $150 million in FY22 alone. The corollary to all that is a much bigger internal legal and compliance cost which won’t go away any time soon. The appointed Special Manager (Stephen Bryan QC) has begun his work in Victoria and will report to the new regulator (VGCCC) over a two year period. The outcome of that report will determine if Crown Melbourne is a ‘suitable person’ to continue to hold a casino licence. The VGCCC is responsible for that decision.
Meanwhile. CWN has reported its 1H22 result which was unsurprisingly horrible. Crown Melbourne was closed for 96 days in the period (136 days in 1H21) which cost the company $94.5 million. Hotel occupancy across the three hotels was just 23%.
In contrast, Crown Perth was open for almost all of the period but has seen performance slip with the introduction of mandatory vaccination requirement from 4 January 2022 and compulsory mask-wearing.
The gaming operations in Sydney are yet to commence while still subject to a consultation process with the regulator (NSW ILGA). The sale of the Crown Sydney apartments has attracted almost $1.2 billion of gross proceeds and CWN expects to sell the remaining apartments by 30 June 2022. Only a small amount of capex remains to be spent on the Barangaroo property out of a total $2.2 billion.
Investment view
It seems CWN’s days as a listed entity are numbered but we see various pathways for parts of the group to return to public ownership in the future. Blackstone may entertain the idea of separating the operational company from the real estate assets and potentially selling off parts of each.
In the meantime, investors will have Star Entertainment Group (SGR) and SkyCity Entertainment (SKC) to gauge the health and vitality of the sector in Australia.
CWN’s assets remain attractive with long-dated licenses, premium tourism exposure and highly cash generative businesses.
Blackstone will have its hands full rescuing CWN from its regulatory purgatory although a substantial amount of penance has already been done.
The next chapter of CWN’s existence will hopefully be far less controversial than its sordid past.
Risks to investment view
The Blackstone transaction is subject to various conditions including FIRB and regulatory approval from State governments.
Recommendation
We have altered our recommendation to Hold to recognise the Blackstone bid.
