When New York-based Blackstone proposed a $13.10 a share takeover bid for Crown Resorts last week, there were clear signals from both the board and controlling shareholder James Packer that this fourth proposal from the private equity giant had a serious chance of succeeding.
However, this ruthless global firm led by executive chairman Stephen Schwarzman, a loyal billionaire mate of Donald Trump, is going to proceed with the takeover only if approval is received from the New South Wales, Victorian and Western Australian governments.
In my opinion, Blackstone is a wholly unsuitable steward of Crown Melbourne — a casino twice as big as the biggest in Las Vegas — because there will be less transparency and accountability and it will ruthlessly fleece addicted gamblers of every last dollar to maximise returns to its private equity clients.
After the three royal commissions into Crown Resorts, two of the problems regulators are trying to solve is better regulating an enormous Melbourne casino that is arguably too big to properly oversee, and removing Packer as controlling 37% shareholder given he is unsuitable to continue controlling casinos after the revelations about all those nefarious activities which happened on his watch.
Packer is eying a $3.3 billion payday from Blackstone which he simply doesn’t deserve if the three state governments approve Blackstone as a suitable operator. And if Blackstone buys Crown for a premium, it will be under considerable pressure from clients to fleece even more from Australians vulnerable to a gambling addiction, not to mention helping criminals launder money.
A better solution would be for each of the three state governments to buy a 10% stake in Crown from Packer at, say, $12 a share. This would be accompanied by a right to appoint one director to the six-person Crown Resorts board, meaning each licence-issuing state government would have genuine skin in the game and direct involvement — but not full control — in ensuring the dubious practices of the past are not continued.
Crown’s Australian casinos are effectively joint ventures between it and the state governments courtesy of the taxation arrangements. The more gamblers lose, the more each of the state governments make.
Spending $1 billion buying a 10% stake in Crown Resorts is small beer in the context that Victorian state debt is forecast to hit $165 billion in a couple of years, and Crown Melbourne is forecast to deliver more than $250 million a year in tax revenue to the state budget once the COVID crisis is over. Besides, this $1 billion investment would also generate annual dividend payments of about $50 million, lifting the state’s annual return from $250 million to $300 million.
ASX investments are not unusual for state governments. Indeed, between insurance giants such as the TAC and WorkCover and the broader VicSuper fund for public servants, the Victorian government is managing more than $60 billion in assets to cover for future liabilities.
Another structuring solution that could be used to accommodate Blackstone (which is also the world’s largest real estate owner) would be to allow it to buy all the property assets and then lease them back to the ASX-listed Crown Resorts to continue operating them.
This would retain Australian control of the politically and socially sensitive gambling operations, with the benefit of all the transparency that comes from being an ASX-listed entity releasing audited results twice a year and complying with Australia’s excellent continuous disclosure regime for public companies.
If Blackstone buys Crown Resorts as it is currently structured, all that transparency will be lost as it will disappear into one of its funds and probably would be managed by the same team which operates dozens of other Blackstone-owned casinos all over the world, including in less reputable jurisdictions such as Colombia, Mexico, Costa Rica, Panama and Peru, as The Australian reported last week.
Crown has been a public company since 1994, although for nine years it was consumed by the broader Packer family conglomerate, PBL, before the casino division was demerged as Crown Resorts in 2008.
Having been visible to the public and locally owned for 28 years, it just doesn’t seem right that Crown Melbourne could soon be privatised by a foreign company like Blackstone and that such a company would be trusted to commence gambling operations at Crown Sydney.
There are better options and these are in the hands of the three state governments, although it might take some agitating to persuade the state Parliaments, cabinets or gambling regulators to come out and refuse to approve the change of control.
This is particularly so if Packer is determined to deliver himself a second major foreign private equity payday after the $5.5 billion sale of PBL Media to private equity firm CVC in 2006.
If Packer wants out, it would be an unusual government that stood between him and a huge exit, but given the unique nature of the casino industry and the long history of regulator failure, there needs to be a different solution than selling the company lock, stock and barrel to Blackstone for almost $10 billion.
