Crown share price: Implications of Oaktree’s Funding Proposal

We examine what Oaktree Capital Management’s funding proposal may mean for the casino operator.

Olive Branches

Crown Resorts Limited (ticker: CWN) on Monday revealed that it had received a proposal from alternative asset specialist Oaktree Capital Management.

The basics of this proposal?

According to the announcement, Oaktree approached Crown with a funding commitment, of up to $3.0 billion, aimed at helping Crown buy back shares owned by Consolidated Press Holdings Limited (CPH).

The funding commitment, which would be facilitated through a structured instrument, would allow Crown on a selective basis to buy back some or all of the outstanding CWN stock held by CPH.

The proposal for the funding commitment is non-binding, preliminary, was unsolicited, and Crown’s Board has yet to form a view on its merits. The company further pointed out that any buybacks would have to be approved by the Crown Board.

For reference, CPH is a private investment company well known to be used as a business vehicle for the Packer family empire. It currently holds a 37% stake in Crown.

In 2018 James Packer stepped down from the CPH Board.

According to Dun & Bradsheet CPH was founded in 1954, has 62 employees and in 2020 generated ~$11 USD million in sales.

Background

Ultimately, it’s been a busy period for Crown. In late March the company received a takeover proposal from Blackstone, another leading global investment firm.

The indicative price of the offer was $11.85 per shar – to acquire all of Crown’s outstanding shares. That offer represents a significant premium to what CWN was trading at, at the time. The stock, unsurprisingly, surged in response.

New Parameters

The company announced some modifications to the proposal offer in mid-April, with Blackstone modifying the regulatory Approval conditions of its proposal.

One of the key points of these new conditions was that Blackstone required that none of:

'Crown's VIC or WA casino licenses is, or is threatened to be, cancelled, suspended or surrendered (or subject to a similar action) or ILGA confirms, or threatens to confirm, that Crown's NSW license is not be granted (or subject to a similar action).'

As we wrote previously, while the market has responded with optimism to the Blackstone takeover bid, there remains two key points of uncertainty for the casino operator, including:

  • AUSTRAC's ongoing investigation into Crown – which is chiefly focused on customer due diligence and AML/ CMF matters.
  • A royal commission into Crown’s Perth and Melbourne casinos. The commission commenced in late-March.

That aside, over the last month the Crown share price is up approximately 21%, trading just above the Blackstone offer price.

CWN is up 48% in the last year.

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