Blackstone's Crown bid could just be the opening shot: VGI

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On Sunday night, it was announced that Crown Resorts (ASX: CWN) was the subject of a takeover bid by US PE firm, Blackstone group. The bid came after a slew of regulatory concerns, leading to the scathing Bergin inquiry, which found the group unfit to hold a gaming license in NSW, with Royal Commissions still to come in Western Australia and Victoria. 

In February, when all seemed lost for Crown, VGI Partners took us through their counter consensus BUY thesis on Crown. VGI capitalised on the media-driven dip in prices in October to build a position in Crown at the mid $8 mark.

Now, with a takeover offer at a mere 19% premium to the recent price and an almost 40% premium to VGI’s entry price, Robert Poiner explains why this bid could be just the opening shot.

Edited Transcript

Robert Poiner:

As a reminder when we last spoke in February, we had built Crown to be one of the largest positions in the VG8 portfolio. And we had done that at a price that was in the mid $8's. At that time, we were buying shares at what we really thought was close to peak negativity. And that was really around both COVID, but then some of the compliance issues that Crown were having.

At those levels, we thought that we were buying at roughly the invested capital base. We saw downside protection from potential M&A around those prices. And so we saw this really interesting asymmetric risk-reward opportunity in Crown shares.

As we sit here today with an offer of $11.85, we think that this is really an opening opportunistic bid. We think that the bid captures Crown at a point of weakness in the business. And the offer really doesn't reflect the strategic value of the asset. When we look at the price, even prior to COVID, it was sitting around $13 and above. And that didn't include some of the uplift from the apartment sales in Sydney.

We think the asset is also, on the other side of these reforms, becomes more valuable. And we think that the increase in compliance reduces risks around the business. We believe that this bid is likely to bring forward other players. And when we look at the last time there was a bid for this asset, it was around two years ago, that was at a price of $14 and higher. So we think this is really just the opening bid and we'll see where it goes from here.

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VGI Partners is a high conviction global equity manager, focusing on businesses with secular growth, attractive industry structures and where they believe they possess insights not appreciated by the wider investment industry. For further information, please use the contact form below.

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