Oaktree Capital Group has proposed funding a A$3 billion ($2.3 billion) buyback by Australia’s Crown Resorts Ltd of its founder’s stake, setting up a clash with rival Blackstone Group for the troubled casino firm’s future.
Private equity giant Oaktree’s offer of a “structured instrument” to help Crown buy back James Packer’s 37% stake comes just a month after Blackstone lobbed an A$8 billion full takeover offer.
Crown did not specify what Oaktree would receive under its proposal, which it said it was considering, along with Blackstone’s offer.
Billionaire Packer’s status as Crown’s major shareholder has been under scrutiny since an inquiry named his influence as a factor when it in February declared the company unfit for a Sydney casino licence, citing activities including money laundering.
Oaktree’s approach to removing Packer from the register would give Crown a way to resolve regulator concerns without selling the whole company at a price below pre-coronavirus levels.
Packer, who left the Crown board in 2018, has indicated he is willing to sell up his stake and has said he supports the board’s decision on an exit strategy. Packer would walk away with around A$3 billion under either proposal.
Many investors have declined to endorse Blackstone’s approach, saying it undervalues the company, pointing to Crown’s higher market capitalisation in early 2020 before the pandemic and regulatory attention hammered its shares.
Blackstone had a history of buying casino companies and spinning off their property assets profitably, and with Oaktree’s help there was “no reason Crown couldn’t copy the strategy and do it themselves”, said Nathan Bell, portfolio manager of Intelligent Investor, which has Crown shares.
Angus Gluskie, managing director of White Funds Management, which has Crown shares, questioned the structure of the Oaktree offer, which limits its exposure but not other shareholders’.
“There is obviously a reason Oaktree doesn’t want some element of the business or wants to receive some uplift in the return that accrues to them, above and beyond the return of a normal shareholder,” Gluskie said.
Shares of Crown were up 0.5% at A$11.97 in mid-session trading on Monday, in line with the broader market, but ahead of Blackstone’s proposed purchase price of A$11.85 per share.
Oaktree, Blackstone and a representative for Packer declined to comment on Monday.
A government-backed inquiry into Crown’s operations uncovered money laundering and dealings with tour operators linked to organised crime.
The subsequent decision by the regulator to withhold Crown’s Sydney gaming licence was a major blow just ahead of the scheduled grand opening of the company’s A$2.2 billion waterside casino, apartment and hotel tower.
With the Sydney casino shuttered, the inquiry prompted regulators with responsibility for Crown’s casinos in Melbourne and Perth to open their own investigations, which are ongoing.
Australia’s financial crime watchdog, AUSTRAC, is also investigating the money laundering finding, while two shareholder class action lawsuits accuse Crown of failing to report operational risks that resulted in large share price falls. Crown is defending the lawsuits.
The regulator for Crown’s Sydney complex, the Independent Gaming & Liquor Authority, has said it hopes to return Crown’s gambling licence soon, and that it would not require Packer to sell his stake before doing so.