Why Blackstone engaged in a 15-month pursuit of Crown Resorts

In an exclusive interview, Blackstone’s Chris Heady explains why the Australian casino operator was an attractive investment despite its legal troubles.

Last Friday, Blackstone closed on its $6.3 billion buyout of Australian entertainment group Crown Resorts, marking the end of a 15-month prolonged acquisition process of the scandal-plagued company.

Crown is one of Australia’s largest gaming and entertainment groups. It owns and operates two of Australia’s leading gambling and entertainment complexes, Crown Melbourne and Crown Perth, as well as the luxury hotel resort and dining precinct at Crown Sydney.

The casino operator has been embroiled in legal and regulatory troubles since 2019, when allegations first emerged that the company was linked to organized crime and money laundering. Following a probe by the country’s financial crimes regulator, the Australian Transaction Reports and Analysis Centre, or Austrac, Crown was sued in late February for breaching anti-money laundering and counter-terrorism financing laws, according to news reports. An investigation by the Victorian Gambling and Casino Control Commission then led to Crown being fined in May for illegally accepting Chinese bank cards, the BBC reported.

Despite the company’s alleged illegal activities, Blackstone first invested in Crown in May 2020, buying around a 10 percent stake in the company, and eventually submitted an acquisition proposal to Crown in March 2021.

PERE understands that Blackstone made its prolonged pursuit of Crown because it was a large-scale, complex transaction where the New York-based firm could acquire assets at attractive valuations. This in turn would allow the company to deliver higher returns for its investors. The capital for the transaction, which is Blackstone’s largest in Asia-Pacific, is understood to be coming from the firm’s real estate and private equity funds.

Chris Heady, chairman of Asia-Pacific and the head of real estate Asia at Blackstone, told PERE that the firm believes that with Crown, “there’s tremendous potential to transform these assets into something special for all stakeholders.”

Heady: Blackstone’s priority is to ensure Crown remains in full compliance under its ownership

The firm sees an opportunity to unlock value by working with the regulators and being part of the company’s turnaround. “From a starting point, we saw a fantastic collection of irreplaceable assets, which were going through a difficult period due to the pandemic and regulatory challenges. We held the view that we could help the assets and the company realize their full potential through our global scale and expertise in the hospitality sector,” he said.

“We are fully committed to working with regulators to ensure that we operate Crown with the highest levels of ethics and integrity – as we do with our other investments around the world – and improving these assets and the overall experience for employees and visitors,” said Heady. The firm’s priority is to undertake a detailed review with Crown’s management of all compliance systems and processes at the casino operator and address any areas that require intervention or investment to ensure that Crown remains in full compliance under Blackstone ownership.

Reuters reported earlier this month that Western Australia’s Racing and Gaming Minister Tony Buti told Blackstone to operate with “the highest standards of governance and operations,” including applying ASX corporate governance principles, reporting all investigations by regulators in Australia and overseas, seeking approval for any new Crown investors and strengthening its auditing and anti-money laundering reporting.

Apart from working closely with the regulators, Blackstone is expected to bring in its expertise in hospitality and leisure to Crown. “We made a successful investment in The Cosmopolitan in Las Vegas, and it is of a similar size and complexity to Crown’s assets. We hope to have a similar positive impact with Crown by investing a lot of capital to improve the consumer experience and at the same time have a positive impact on the local economy,” said Heady.

The firm sold The Cosmopolitan of Las Vegas this year for $5.65 billion after owning it for eight years. During this time, it implemented major operational changes, developed a “best-in-class” management team and invested significant capital to renovate 3,000 guest rooms and enhance food and beverage offerings, according to a Blackstone release. In addition, it also owned Hilton Hotels Corporation for 11 years, during which time the firm doubled the size of the company to more than 5,300 properties and 400,000 employees worldwide.

In addition to the firm’s strong expertise and track record in the hospitality sector, the investment in Crown also aligns with Blackstone’s highest conviction theme: post-pandemic travel. Its other recent investments in this sector include the acquisition of an eight-hotel portfolio across Japan’s top tourist destinations; the acquisition of Bourne Leisure, a British holiday company; and the joint acquisition of Extended Stay Hotels with Starwood Capital Group.