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.
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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.
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