Crown Resorts has spurned an AU$8.4 billion (US $6.5 billion) takeover offer from the Blackstone Group, but continues to weigh a merger proposed by Australia’s second biggest casino company, Star Entertainment Group.
On May 10, shortly after Blackstone raised its own bid for Crown from AU$113.5 to AU$12.35 per share, Crown released a statement saying its board had “unanimously concluded that the revised proposal undervalues Crown and is not in the best interests of Crown’s shareholders.” The company has also received an offer from Oaktree Capital to buy the Crown ownership stake of former chairman James Packer of AU$3 billion for approximately 37 percent of Crown.
At that point, Star’s proposal came in. Crown has invited Star to provide more information on its offer, which values the company at AU$9.5 billion. Crown advised its shareholders that they don’t need to “take any action in relation to the merger proposal at this stage. There is no certainty that the merger proposal will result in a transaction.”
Star wants an all-share merger that would create an AU$12 billion gaming juggernaut. It offered 2.68 shares for each Crown share, implying a potential value of more than AU$14 per share. The offer includes a cash option of AU$12.50 a share.
In February, regulators in New South Wales (NSW) suspended Crown’s gaming license in Sydney based on the results of the Bergin Report, a study that uncovered evidence of money laundering and organized crime at Crown casinos in Victoria and Western Australia. According to Forbes, Crown is talking with NSW regulators about employing cashless gaming at its multibillion-dollar VIP casino in Sydney’s Barangaroo district, which has never opened.
A plus for Star is its track record of strong governance and compliance, , which “should result in reduced regulatory approval risk” for a merged company, said Star Chairman John O’Neill.
According to Asia Gaming Brief, the proposed merger is viewed by analysts “as an overall positive for the two companies.” But it may face skepticism from the Australian Competition and Consumer Commission (ACCC) due to antitrust concerns.
David Green, an Australian gaming industry veteran, told AGB, “The biggest issue facing a merger is likely to be the ACCC, which will be concerned about the concentration of ownership and absence of competition in the three key Eastern state markets. NSW will be a particular issue.”
ACCC Chairman Rod Sims promised “a detailed investigation. … It’s very early days, but we would look at the market for domestic table game customers. We would look at the competition between Barangaroo and Star in Sydney. We would also look at the extent to which there is intercity competition for customers.”
But CLSA analyst Anthony Longo said, “With most Australian casinos servicing the locals market, we see the limited threat of the ACCC blocking the transaction, and this view is shared by Star.”
Meanwhile, Crown could be permitted to open its Sydney casino soon, said Philip Crawford, chairman of the NSW Independent Liquor & Gaming Authority. Crown is making “significant progress” in addressing the concerns laid out in the Bergin Report, Crawford said. “It’s coming together, and it’s probably a bit sooner than I thought.”
