Blackstone withdraws offer for Crown amid uncertainty

A US private equity firm that once held hopes of acquiring a bigger slice of Crown Resorts has walked away from the casino operator and isn’t planning to return with a new offer for at least 18 months.

The Australian reports that Blackstone’s view is that Crown is not currently in an investable state.

Any deal is not likely to happen until about two years, if it was to occur, say sources.

Blackstone came forward with a bid of $11.85 per share or $8 billion for Crown in March, but it was rejected by the Crown board.

It now remains to be seen in Blackstone divests its 9.99 per cent holding purchased in Crown during 2022 for $552 million.

Other global suitors are also said to be holding off on any plans to throw their hat in the ring for the business.

Earlier, other private equity firms had also been circling the business, while rival Star Entertainment made a bid.

Star itself is now at the centre of investigations surrounding money laundering at its casinos and a bid for Crown is off the table.

Deterring buyers of Crown is the $100 million it has to pay to the Australian Taxation Office following a Federal Court case, royal commissions and an investigation by AUSTRAC into its operations over various allegations including money laundering.

Royal commissions and AUSTRAC investigations also meant Crown keeping its casino licences in Perth, Sydney and Melbourne will involve material expenses and operational costs.

Shrinking revenue and greater operating expenses linked to higher regulatory standards are seen as deterrents for private equity buyers such as Blackstone.

Private equity experts also say that once a deal has fallen over, typically it is then difficult to gain approval from the investment committee in such major global private equity firms for a second attempt at a target.

Suitors will also now need regulatory approval to buy more than 5 per cent of the casino operator.

James Packer has until September 2024 to reduce his 37 per cent stake to less than five per cent, following directions from the Victorian royal commission.

Blackstone not out of the Australian market altogether

Having officially cooled off Crown, Blackstone still has its sights set on an investment in Australia.

The private equity behemoth is rumoured to be mulling a sale-leaseback transaction involving Star Entertainment’s Sydney integrated resort.

That rumour surfaced on the day that the casino operator’s share price tumbled after allegations that it facilitated money laundering at its Sydney and Gold Coast casinos came to light.

The slide in Star Entertainment stock led to $740 million in evaporated market capitalisation.

Regarding the Star Sydney, the operator sees an avenue to create value for shareholders by potentially selling a majority stake in the $1.68 billion venue and leasing back the remainder.

The company could be looking to sell a 51 per cent interest in the property, while retaining 49 per cent.

“We see the potential to unlock value from our property assets via a sale and leaseback or similar transaction,” Star Entertainment chief executive Harry Theodore said.

Credit Suisse tasked with sale-leaseback work

Credit Suisse is working on sale-leaseback leads for the gaming company.

Sale-leaseback deals, or SLBs, are commonplace in the industry and often viewed as win-wins for casino operators and real estate companies.

Through these agreements, a gaming company can monetise land assets, often garnering large, upfront sums of cash to use for anything, including more acquisitions, shareholder rewards, such as buybacks and dividends, or to reduce debt.

Likewise, the real estate firm that leases the land back to the operator gets the benefit of long-term tenant agreements that often include gradually increasing rates without having to be financially responsible for building enhancements.

For now, Blackstone’s possible involvement in a sale-leaseback for Star Sydney remains a point of speculation, not confirmation.

However, the private equity firm has an established track record of involvement in gaming SLBs.

In 2019, Blackstone acquired the property assets of the Bellagio on the Las Vegas Strip and leased that venue back to MGM Resorts International.

A few months later, it took a minority stake in a deal with MGM Growth Properties in the real estate of the MGM Grand and Mandalay Bay.