Opinion
Crown’s chief executive-in-waiting’s $5.2 million get out of jail free card
Elizabeth Knight
Business columnistYou won’t find this job advertised on Seek. A guaranteed $5.2 million signp-on fee even if you have your feet under the desk for only a day.
That’s the value Crown Resorts has ascribed to its chief executive-in-waiting and Lendlease boss Steve McCann’s risk of losing his job if the company is taken over. Before he can even begin the role McCann must get the tick from gaming regulators ( a process that could take six months).
McCann doesn’t have form running a casino but the man, who counts in his list of achievements having been a former world series poker player, knows how to assess the stakes.
New Crown boss Steve McCann has been boss of Lendlease for years.Credit:Louie Douvis
A lot can change in six months.
There are at least three suitors attempting to buy, control or merge with Crown - all of which will have their own candidates lined up. There is a decent likelihood McCann will barely have unpacked his framed family pictures and pot plants before the ownership of Crown changes hands and he might be out of a job.
So it’s a fair bet that, based on an hourly or weekly rate of pay, he may become the highest paid executive in the country. But this level of generosity won’t faze Crown shareholders - least of all its 37 per cent controlling shareholder James Packer.
He is just watching from the other side of the world as the value of his Crown shares tick up as the bidding war between two private equity firms, Blackstone and Oaktree and now Australian rival casino group Star Entertainment progresses.
Each of the Crown proposals possess a different twist and are not directly comparable. Oaktree is looking to fund Crown to buy back Packer’s stake, Blackstone has just increased its own indicative offer for Crown shares from $11.85 to $12.35 and Star is offering its own shares (and a limited cash alternative) as consideration.
If Packer, who has been engaged in a long standing feud with Star, accepts its offer, he would retain a holding sufficiently large that it would represent a stake that could be considered controlling - and that’s even if he takes the maximum cash available.
Thus the Star merger proposal would need to be ticked off by the NSW regulator. (The competition regulator also needs to sign off on the merger.)
The bad blood between James Packer and The Star is legendary.Credit:AAP
So while there is a full-scale auction taking place, the Crown board isn’t flinching. In effect, other than fulfilling its disclosure obligations via issuing updates on the frenetic bidding war, it is just sitting back and getting on with the job of trying to get the casino group sufficiently match fit to get regulatory approvals in NSW.
Hiring a chief executive is part of this process.
To date Crown’s strategy of doing nothing has worked nicely. The less generous offer from Blackstone has been juiced up and Star has entered the fray.
But the massive kick up in Crown’s share price on Monday suggests neither of the offers are large enough. The Star’s share price also received a large shot of adrenalin - suggesting its proposal would be highly value enhancing for its shareholders.
Sources close to Crown say the company has given no indication to any of its suitors that they would be offered a look at its books in order to undertake due diligence.
Under normal circumstances a company with interested suitors could weigh up bids against the option of growing organically under its own steam.
But Crown has a major shareholder in Packer looking to exit his stake so the status quo isn’t really a viable option.
Crown’s board must also recognise that if it doesn’t engage with bidders or begin a more formal process it takes the risk that the bidders will disappear.
One reason for Crown playing hard to get is that the current offers are still a little lean.
Star is offering up to 25 per cent of its consideration in cash at $12.50 per share. The scrip element values Crown shares at a less generous $11.20. But it says when the synergy values are factored in the implied offer is worth $14 per Crown share.
The fact that the Crown share price spiked up to $13 on Monday probably reflects the market’s view that both Blackstone and Star have more in the tank to increase their respective offers.
The market also takes the view that now the bidding war has begun, other would-be buyers will join the process.
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Elizabeth Knight comments on companies, markets and the economy.