US private equity firm Oaktree has finessed its strangely-designed approach to buy shares in Crown held by James Packer with Crown’s own money.
Rather than use its own money, Oaktree essentially wants to lend money to Crown to finance the buyback of shares from Packer.
Packer has to sell his stake otherwise Crown will not be able to continue in the casino business, especially in NSW where his departure from the company’s share register is a prerequisite for consideration of the company’s fitness to operate its Barangaroo casino.
It is clear that from the briefing of business writers about what is going on that Packer wants more money and Oaktree’s offer is an attempt to meet that demand without too much cost to the bottom fishing US investment fund.
Packer, after mea culpas last year in the NSW casino inquiry, is now reverting to type and trying to get out of Crown for the highest price possible, when it has been his influence that has cruelled its chances of gaining control of its Barangaroo casino in Sydney and caused problems in WA and Victoria.
Oaktree made its first approach to Crown in April, with a deal that would see Crown selectively buy back some or all of the 37% stake in Crown held by Packer.
Mr Packer’s influence over the group’s operations and governance was one of the key reasons the Bergin inquiry found in February that Crown was not fit to run a casino in NSW.
Packer’s departure entirely from the company has to be sorted for Crown to start discussions with regulators about the licence for its new Sydney casino.
Crown told the ASX on Tuesday that Oaktree had revised its proposal, which was now a $3.1 billion offer comprising of a $2 billion private term loan and $1.1 billion in a loan that could be converted to shares.
The loan would be for seven years with a 6% coupon for the first two years, increasing to 6.5% after that.
The convertible component would give Oaktree the ability to swap the $1.1 billion facility into new Crown shares at $13 each after one year, as long as Crown’s share price is higher than $13 at the time.
The shares closed at $12.22 on Friday but fell to $12.15 yesterday as investors reckoned the latest offer had no chance.
The exchange would be capped at shares equivalent to a 9.99% holding in Crown – which is equal to fellow buyout firm Blackstone, which has launched its own, low ball offer for Crown.
That assumes that crown will have all its casinos approved, when there is still a lot of doubt about Perth, Melbourne and especially Barangaroo.
“The Crown Board has not yet formed a view on the merits of the Revised Oaktree Proposal,” Crown said in a statement. It really can’t say much more until these inquiries and regulators reach their decisions.
Regardless of the structure of the transaction Oaktree and Blackstone will have to go through probity checks from regulators if either are successful. That will be a further delay.
Star, Crown’s Sydney rival, has offered shares and capped cash for Crown as well.
The bottom line for all these strangely structured deals is that no one wants to offer a lot of cash initially while there is so much regulatory uncertainty surrounding Crown’s future.
If the regulators and Crown eventually do deals in NSW, Victoria and WA, a cash offer becomes more feasible. It is much easier and convincing to covert a shares and cash offer to a cash or deal, or offer more cash and less shares. Oaktree and Blackstone do not have any paper that Australian investors would like, only Star.
The Victorian royal commission has been given an extra 11 weeks to probe Crown and after the revelations last week or tax underpayments and illegal betting.
With a total of close to at east $400 million involved, there’s now a lot more at stake in Melbourne. Could that be an unwanted contingent liability for Crown in Victoria?
