Australian casino operator Star Entertainment Group Ltd has submitted a merger proposal to its market rival Crown Resorts Ltd, setting up a bidding war with private equity management firm Blackstone Group Inc.
In a Monday filing, Star Entertainment said its non-binding proposal offers 2.68 of its own shares per Crown share. Star Entertainment said its proposal values Crown shares above AUD14.00 (US$11.00).
Crown shareholders would also be offered the alternative of AUD12.50 cash per share, up to a limit of 25 percent of its shares, according to Star Entertainment’s proposal.
Star Entertainment owns and operates The Star Sydney casino hotel (pictured) in New South Wales, and two other gaming venues in the state of Queensland, the Star Gold Coast and the Treasury Casino and Hotel Brisbane. The company is currently expanding its Queen’s Wharf Brisbane scheme, with two Hong Kong-based partners.
The merger proposal trumps a bid by Blackstone, which was raised over the weekend from AUD11.85 to AUD12.35 per share. Blackstone’s new cash offer puts an AUD8.4 billion value on Crown.
Bidders are circling Crown while the company is troubled by regulatory inquiries, after it was found unsuitable to run its new Sydney casino in February. The casino firm also faces respective probes into its suitability to operate its casinos in Melbourne and Perth.
In Monday’s filing, Star Entertainment said its proposal would be “highly accretive” for both companies, and could deliver between AUD150 million and AUD200 million in annual cost savings. It stated that a combined entity could be worth AUD12 billion, with the group controlling seven properties across four states in Australia.
Star Entertainment also said that a merger deal could “unlock significant value from a sale and leaseback of the enlarged property portfolio.”
The filing quoted Star Entertainment’s chairman, John O’Neill, as saying: “A merger … would result in significant scale and diversification and unlock an estimated AUD2 billion in net value from synergies. With a portfolio of world-class properties across four states in Australia’s most attractive and populated catchment areas and tourism hubs, the combined group would be a compelling investment proposition and one of the largest and most attractive integrated resort operators in the Asia-Pacific region.”
In a Monday note, JP Morgan Securities Australia Ltd said Star Entertainment’s management did not expect the Australian Competition and Consumer Commission to pose a “significant hurdle” to the merge bid. “However, regulatory approvals … will drive timeline to completion,” added the brokerage.
The memo followed a conference call by Star Entertainment to explain the details of the proposal. According to JP Morgan’s note, the casino firm’s management said a merger was the “preferred course of action,” versus “any existing or proposed cash offers”.
“Once the merger is approved, Star Entertainment believes synergies can be achieved quickly. Bulk of the synergies will be captured within 12 months,” wrote analysts Don Carducci and Abhinay Jeggannagari.
Also on Monday, Crown said Blackstone had increased the indicative offer price in its proposal, by AUD0.50 cash per share, or about 4.2 percent.
Crown stated that it was assessing both proposals, taking into consideration the value and terms of each bid.
In April, Crown said it had received a AUD3.0-billion proposal by private equity firm Oaktree Capital Management LP to buy the circa 37-percent stake of James Packer in the casino firm. Mr Packer, via Consolidated Press Holdings Pty Ltd, is the largest single shareholder in Crown.
On Monday, Crown also announced the appointment of Steve McCann as the group’s chief executive and managing director, subject to probity and regulatory approvals. Mr McCann is currently group CEO of real estate and investment group Lendlease Corporation Ltd.
(Updated at 12pm, May 10)
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”If they [Star Sydney] can’t prove they are capable of operating with a conditional licence over the next six months, the manager will be retired, and the doors will close”
New South Wales Independent Casino Commission