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November 19, 2021

Blackstone (BX.N) could be third time lucky. The buyout shop’s sweetened A$8.5 billion ($6.2 billion) bid for Crown Resorts (CWN.AX) should be strong enough to sway a previously recalcitrant board, as well as shareholders including founder James Packer. The prize would be a long slog to rebuild the embattled Australian gambling empire.

Its latest offer at A$12.50 a share, following lower ones in March and May, is worth 26% more than where Crown shares closed on Thursday. The buyout shop’s original overtures were snubbed despite similarly sized premiums as Crown preferred to merge instead with rival Star Entertainment (SGR.AX) in a more complex transaction, one that ultimately fell through. Discussions with Oaktree to help fund a buyout of Packer’s stake also ended.

Crown’s new leadership may be more receptive. Since Blackstone originally bought a 10% stake in April 2020 at A$8.15 a share, a lot has gone wrong. In the latest in a vicious string of regulatory crackdowns, Crown will have an independent monitor overseeing its operations in the state of Victoria for a couple of years, with the threat of losing its licence if it fails to shape up its controls and practices. Financial penalties are also racking up, and other gambling authorities may have more in store.

Despite these significant challenges, Blackstone reckons it can be a sturdy custodian and profitably reshape the strategy as Covid-19 restrictions are relaxed in Australia. Wealthy international high-rollers will no longer support Crown’s growth, even though its new flagship six-star resort in Sydney was designed to cater to that crowd.

An impressive track record with hotels and casinos is at stake for Blackstone. It nearly doubled its money on Hilton Worldwide (HLT.N) despite buying the chain just before the global financial crisis struck. It also cleaned up with The Cosmopolitan in Las Vegas. Given the state of affairs at Crown, delivering a chunky return for investors would further burnish its credentials.

Before Crown’s real troubles began, Packer agreed in May 2019 to sell a 20% stake to Melco Resorts and Entertainment for around A$13 a share after Wynn Resorts (WYNN.O) walked away from its A$14.75 cash and shares offer in April of that year. With all that in mind, it’s time for Crown to drop the poker face.