The Star Entertainment Group has thrown its hat in the ring for a shot at acquiring James Packer’s Crown Resorts with a $12 billion merger offer that would create a gambling and hospitality monolith comprising seven properties across four states.
The proposed merger will be publicly announced in an ASX statement. This development means that The Star will be competing directly with US investment titan Blackstone in the fight for the embattled casino group. Crown’s licence for its new Sydney casino was suspended by regulators in February 2021, and royal commissions into the company are set to start soon in Victoria and in Western Australia.
Blackstone’s offer of $8 billion for Crown was proposed in March, and a third contender, US investment fund Oaktree Capital, put forward an offer of $3 billion for Mr Packer’s 37 per cent stake in the company.
According to an anonymous source, The Star has advised Crown of the imminent announcement of its non-binding, indicative proposal and the company believes that its long history of running casinos in Sydney, Brisbane and the Gold Coast, puts it in the ideal position to address Crown’s regulatory issues more efficiently so than the others lined up to take over the beleaguered organisation. In February 2021, Crown was deemed unfit to run its new casino at Sydney’s Barangaroo, following proven allegations that money-laundering activities were taking place at its casinos. These revelations came to light alongside other probity miscarriages that the Bergin inquiry revealed.
Investors from both companies would receive shares in a new entity with an estimated value of around $12 billion and the deal would allow the company to stay listed on the ASX.
The Star is of the opinion that having the two groups merge would generate $150 million to $200 million in cost savings per year, which would add up to approximately $2 billion in equity value for the combined group’s shareholders.
The deal would also create an implied per-share value of $14 for Crown shareholders, at last glance; the group’s share price was hovering at about $12.12.
Blackstone already holds a 10 per cent share of Crown and put forth its initial offer of $11.85 per share, but later increased its bid according to an inside source.
It has been speculated that Crown investors would have the choice between cash or new shares in exchange for their original Crown shares. The cash portion is reportedly restricted, so Crown shares investors could receive an amount contingent upon how many shareholders go for that option.
Sources also revealed that The Star’s preference is a merged company as an arrangement of that sort could potentially mean significant benefits from co-ordinating marketing, loyalty programs and digital systems, positioning The Star to better exploit new growth markets across the globe as travel and tourism industries begin to mend from the COVID-19 pandemic.
The combined company would keep the Crown brand for its Melbourne, Perth, and Sydney properties, while existing The Star casinos and hotels would retain their brand.
With about 11,500 workers at the Southbank complex, Crown is Victoria’s largest single-site employer and generates about 1 per cent of the state’s tax income.
In all likelihood, a merger would require the nod from the Australian Competition and Consumer Commission, and The Star would need to secure a licence from by gambling regulators in Victoria and Western Australia.
The gaming rooms for Crown’s planned $2.2 billion Crown Sydney had a planned opening of December 2020. However, the NSW gambling watchdog scuppered these plans, following the damning allegations that triggered the Bergin inquiry
The inquiry was initiated after a flurry of media reports uncovered money-laundering in company bank accounts linked to Crown Melbourne and Crown Perth. The Casinos was found to have aligned themselves with “junket” high-roller tour operators with links to organised crime; and overlooked the well-being of staff members who were arrested in China for gambling crimes in 2016.
Crown has reported that it is embarking on an exhaustive governance reform process, with the company’s management and board left feeling eviscerated by the outcome of the Bergin inquiry. The company’s previous chief executive Ken Barton and five directors have already vacated their positions and Crown has yet to appoint a new CEO while executive chairman Helen Coonan temporarily occupies the position with only four directors.
A merger could end up hastening the progress of re-placements at Crown’s management and governance level. Existing executive teams may combine with each other, with Star CEO Matt Bekier at the helm, leading a board selected from existing Crown and Star directors.
A lot of the power to approve of any merger rests with Mr Packer who owns 37 per cent of Crown. Packer has been searching for a buyer of his stake in Crown for a few years now. The NSW casino licence that The Star holds incudes a caveat that specifies that no single shareholders can own more than 10 per cent of its shares.
