Crown sale could lead to asset break up

By Mia Chapman Updated
Fitch hands down latest Crown Resorts rating update

James Packer’s Crown Resorts was recently put in play when the world’s biggest private equity firm made a bid for the embattled gambling company.

The Sydney Morning Herald reports that while Blackstone’s cash bid at $11.85, valuing the company at $8 billion was widely viewed as opportunistic, it has allowed attention to turn on the value of Crown if it was broken up.

If Crown’s assets, its casinos in Melbourne, Sydney and Perth, were pulled apart and auctioned off to the highest bidders, then the value for its potential suitors lies not just in its $5 billion in hotel and resort assets, but potentially its gaming licences.

Typically, a casino’s gaming licences and property assets are linked, but they can be sold separately.

On its balance sheet, Crown values those licences at $1 billion, but that was before the coronavirus pandemic and the damning findings of the New South Wales Bergin inquiry.

The inquiry, which released its report in February, found Crown’s Melbourne and Perth casinos had been infiltrated by organised crime groups and used to launder money, confirming an investigation by The Sydney Morning Herald journalist Nick McKenzie.

The Bergin inquiry found Crown was unfit to operate its Sydney licence, and its casino floors that were due to open in 2021 remain closed.

Royal commissions reviewing Crown’s licences in Victoria and Western Australia are underway.

Those developments have raised questions about the value of Crown’s licences and explain the low-ball bid from Blackstone.

The value of Crown’s licences have also been hit by the recommendation in the Bergin report to ban junket operators, some of which were found to have links to organised crime.

Crown Sydney’s business model, in particular, was heavily dependent on revenues from international tourism and junket operators who bring in high rollers.

Crown’s Sydney licence does not permit it to have poker machines, unlike its rival Star Entertainment, which holds the other Sydney casino licence.

There has been speculation that Star, the smaller of the two casino companies, could be a possible bidder for Crown.

That is possible, but viewed in the market as unlikely.

A more digestible deal for Star, if it were interested, could be a bid for Crown’s Sydney assets.

Star is in the box seat to make the most out of Crown Sydney in the event of a break up.

It is a known quantity to NSW’s gaming regulator, but more importantly has a licence to operate poker machines in the city.

What that means is poker machines could potentially be introduced to Crown Sydney, making up some of the lost revenue from the junket operator ban.

Crown and Star merger would create value, top shareholder revealed

A top shareholder at one of Australia’s biggest casino operators said it should capitalise on the uncertainty around Crown Resorts by jumping on board with a potential takeover by Blackstone.

The Sydney Morning Herald reported that Blackstone’s $8 billion bid for Crown has drawn the eye of Star Entertainment, with portfolio manager at major Star shareholder Wilson Asset Management John Ayoub saying he would support Star either joining Blackstone’s bid for Crown or coming on board to operate Crown’s three casinos in a joint venture model already used by Blackstone in two Las Vegas casinos.

“In a perfect world, you would have Star as the owner and operator of the assets and Blackstone would be the owner and beneficiary of the property assets,” Mr Ayoub said.

“From a shareholding perspective, you’d love to see it happen.

“Anything that achieves a Crown-Star tie-up is something that Star shareholders should see as a positive.”

Analysts have estimated a merger of the $8 billion Crown and $3.7 billion Star would deliver around $150 million a year in synergies, which Mr Ayoub said translated to about $1.5 billion in shareholder value.

Star owns casinos and hotels in Sydney, Brisbane and the Gold Coast.

Crown has casinos in Melbourne and Perth, while its new $2.2 billion Sydney casino has not yet commenced gaming operations due to the fallout of the Bergin inquiry.

Mr Ayoub said it would be unwise for Star to become involved in Crown until royal commissions into its Victorian and Western Australian licences were completed and the question mark over its NSW licence was removed.

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