Motley Fool Australia

Crown’s share price fires up as takeover speculation reignites the ASX stock

man at casino throwing chips in the air

The Crown Resorts Ltd (ASX: CWN) share price surged this morning as a new major shareholder popped up on its share register.

The Crown share price rallied 7.9% to a one and a half month high of $9.28 at the time of writing. This make the casino operator the best performer on the S&P/ASX 200 Index (Index:^AXJO).

The excitement is spilling over to rival SKYCITY Entertainment Group Limited (ASX: SKC). The stock is third on the leader board as its share price jumped 6.9% to $2.32, while building materials James Hardie Industries plc (ASX: JHX) is the runner up.

Barbarians at the gate

But it’s Crown that’s stealing the limelight after it announced that U.S. private equity firm Blackstone Group Inc bought a 9.99% stake, or 67.7 million shares in the embattled ASX company.

The news is twice as exciting because Blackstone bought all the shares in Crown from Melco Resorts & Entertainment Ltd, which is led by James Packer’s mate Lawrence Ho.

Melco’s holdings turned out to be a double-edged sword for Crown shareholders. It created a lot of excitement and fuelled takeover speculation when Melco made the purchase and said it was keen to buy a further 10% stake.

Crown recovering from a hangover

But the coronavirus crisis scuttled the plan – just as well as experts believe Lawrence Ho would struggle to get regulatory approval to lift his stake – and Crown shareholders woke from the party with a hangover.

Blackstone’s move on Crown not only clears this overhang, but it gives investors confidence in the value of Crown’s shares, which collapsed 35% over the past year before today’s surge.

The new acquirer paid $8.15 a share (or $552 million), which represents a relatively skinny discount of 5.2% to Crown’s closing price on Tuesday.

The private equity group is a large investor in real estate and Crown is sitting on some valuable pieces of land in Australia.

Is Crown a takeover target?

The question now is Blackstone’s next move. There will be plenty of speculation on whether the giant investor will seek to make a takeover bid or be happy to sit pat.

If I had to guess, I would say that private equity buyers seldom like to invest in companies where they don’t have management control. I think there’s another chapter to this story.

Crown has long been seen as a takeover target due to its poor share price performance, which some argue doesn’t reflect the value of its unique assets.

There was even talk a few years ago that James Packer (a major shareholder and ex-chairman of Crown) would launch a management buyout and take the group private.

Casinos have been badly hit by the COVID-19 pandemic as entertainment and hospitality venues were forced to shutter to contain the outbreak.

This Tiny ASX Stock Could Be the Next Afterpay

One little-known Australian IPO has doubled in value since January, and renowned Australian Moonshot stock picker Anirban Mahanti sees a potential millionaire-maker in waiting...

Because 'Doc' Mahanti believes this fast-growing company has all the hallmarks of genuine Moonshot potential, forget 'buy now pay later', this stock could be the next hot stock on the ASX.

Doc and his team have published a detailed report on this tiny ASX stock. Find out how you can access what could be the NEXT Afterpay today!

Returns as of 6th October 2020

Motley Fool contributor Brendon Lau owns shares of James Hardie Industries plc. Connect with him on Twitter @brenlau.

The Motley Fool Australia has recommended Crown Resorts Limited and Sky City Entertainment Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Related Articles…