Update May 17, 2021: Crown Resorts has rejected the latest bid from The Blackstone Group, on grounds that it undervalues Crown’s assets and potential for future earnings. Star Entertainment Group’s merger offer remains very much a possibility, with Crown on Monday requesting “information to allow the Crown Board to better understand various preliminary matters.”

Race heating up

Australian casino company Star Entertainment Group Ltd has made an offer that would see it merge with Crown Resorts Ltd. This sets up a potential bidding war against private equity firm Blackstone Group Inc., which upped its offer for Crown Resorts over the weekend.

A Monday filing outlines Star Entertainment’s non-binding nil-premium offer of 2.68 of its shares for each Crown share. Based on Friday’s closing prices, this equates to AU$10.48 (US$8.25) per Crown share. The bid also includes a cash alternative worth AU$12.50 (US$9.84) per share, available up to a maximum of 25% of the total issued shares. According to Star, the implied potential value of the combined deal would be AU$14 (US$11.02) per Crown share. This value would only be achievable by saving about AU$2bn (US$1.57bn) in synergy costs following a merger.

Blackstone’s cash offer values Crown at about AU$8.36bn (US$6.58bn)

Blackstone originally made an offer for Crown Resorts in March. It already owns a 9.99% stake in the casino giant, making it the second-biggest shareholder. The US-based company raised its bid over the weekend from AU$11.85 (US$9.33) per share up to AU$12.35 (US$9.72). Blackstone’s cash offer values Crown at about AU$8.36bn (US$6.58bn).

Crown Resorts has stated that it is considering both offers. On the back of the news of the two bids, Crown Resorts’ share price rose 7.3% to AU$13 (US$10.24) by the end of trading on Monday. The company’s market cap reached AU$8.8bn (US$6.93bn).

Potentially significant synergies

Star Entertainment is currently the owner and operator of two casinos in Queensland and one in Sydney, Australia. According to its Australian Stock Exchange (ASX) filing, a merger with Crown Resorts could lead to annual cost savings of AU$150m (US$118m) to AU$200m (US$157.5m). The resulting company could be worth upwards of AU$12bn (US$9.45bn) and would have control over seven casinos in four Australian states. The only Australian casinos that are not under the ownership of the two companies are in Tasmania and Adelaide.

resulting company could be worth upwards of AU$12bn (US$9.45bn) and would have control over seven casinos

The pro forma ownership of the new entity, if the cash alternative was fully taken up, would be 59% for Crown shareholders and 41% for Star Entertainment’s shareholders. Star Entertainment also stated that a merger could potentially “unlock significant value from a sale and leaseback of the enlarged property portfolio.”

Star Entertainment chairman John O’Neill believes the deal would lead to diversification and total synergies with a potential net value of AU$2bn (US$1.57bn). He is confident that the resulting company would be one of the biggest and most attractive operators of casino resorts across the Asia-Pacific region.

One other party is also a part of the bidding equation. In April, private equity firm Oaktree Capital Management offered to help Crown Resorts to buy back as much as AU$3bn (US$2.36bn) worth of its shares from majority owner James Packer. The billionaire owns 37% of Crown Resorts, but he is facing regulatory pressure to distance himself from the company’s operations.  

Competition authorities to have their say

Star Entertainment does not envisage having any issues getting approval from the Australian Competition and Consumer Commission (ACCC) for such a merger. The casino company also believes that it would be able to complete all relevant documentation and due diligence in the next eight to 12 weeks.

“We will do a detailed investigation. It will be a public review.”

ACCC chairman Rod Sims revealed on Monday that he will hold a public review of the proposed merger. He said: “We will do a detailed investigation. It will be a public review.” The review would consider various aspects of the merger, such as looking at the market for table game customers in the country, as well as the level of intercity competition.

Potential stumbling block

An issue that could put the sale of Crown Resorts in jeopardy is the ongoing investigations by regulators. A New South Wales inquiry concluded in February that Crown Resorts is currently unsuitable to hold a casino license in Sydney. Crown Resorts is also the subject of royal commission investigations in Western Australia and Victoria to assess its suitability to operate its Perth and Melbourne casinos.

Blackstone has already stated that its offer is conditional on receiving confirmation from regulators that a Blackstone-owned Crown Resorts would be a suitable entity to own and operate the relevant gaming licenses.

The offer is also conditional on no suspensions, cancelations, or threats to the casino licenses in Western Australia and Victoria. The deal would be in jeopardy if the NSW Independent Liquor and Gaming Authority “confirms, or threatens to confirm, that Crown’s New South Wales licence is not to be granted.” Finally, Blackstone’s offer is conditional on none of the gaming authorities in the country imposing terms or conditions on a Crown casino or casinos that would lead to a “material adverse change”.

It will be a busy few months ahead for Crown as it considers the various offers and awaits the outcome of ongoing investigations. Also on Monday, Crown announced Steve McCann as its new managing director and CEO, beginning officially on June 1.