Star-Bally’s deal updated with AU$100 million input from largest shareholder
The change in the deal structure was announced through an ASX filing yesterday (8 April). When Star and Bally’s released the original term sheet the day before, it was full of contingencies related to whether Mathieson would agree to the investment, which has now been made official.
Given Star’s day-to-day fight to stay afloat, the deal was split into tranches of AU$100 million and AU$200 million. The first tranche is to help the company survive in the near term and is not subject to approvals. It is split between convertible notes and subordinated debt.
Once shareholders and regulators approve the deal, the second tranche can be drawn, but no later than 7 October if approvals are still pending. A shareholder meeting is expected to be held in June, but there is no timetable for regulatory approvals.
Mathieson, a billionaire pub and slot mogul, previously owned 10% of Star shares. Under the new arrangement, he will acquire 5% of the convertible notes and a third of the subordinated debt from the first tranche. Those represent about AU$11 million and AU$22 million of his investment, respectively. The remaining balance will be applied to the convertible notes in the second tranche.
Star has yet to comment on the deal publicly. The company is still working to file its financial report for the period ended 31 December. Its stock, as a result, has been halted from trading at 11 cents since late February.
Kim: “New Star” to be brighter than last iteration
After the deal was announced, Bally’s chairman Soo Kim gave an extended interview to Inside Asian Gaming. He broke down several aspects of the transactions and how his company views the new investment.
With regard to the two-tranche deal, Kim said this was done “so that [Star] has enough liquidity to get us to the point where we actually take control”.
The soonest that could happen, he posited, was about 90 days. That waiting period will be crucial for Bally’s to “understand the business” and formulate “a Day One action plan”, he said.
Notably, Kim was also asked about where things stand with Star’s interests in Brisbane. Star in early March agreed to exit the multibillion-dollar Queen’s Wharf joint venture by selling its 50% stake for AU$53 million. Bally’s did not support that decision, which was struck just days before it tendered an offer. However, Kim’s response indicates that the exit will go through after all, leaving Star with two casino assets instead of three.
“We acknowledge that [Star] has signed an agreement,” he said. “I believe that they are still in the process of going to long form on that. What I would tell you is, we’re just getting a handle on the entire situation.”
Asked about Mathieson, Kim said Bally’s had conversations with him from the beginning. Kim called Mathieson “a long-suffering shareholder for quite some time” and confirmed the two sides would be partners. Overall, the Bally’s chief was more than confident his team has the goods to turn Star’s ship around.
“The ‘new Star’, which is what I’d call it for now, will be brighter than the Star in the past,” he asserted.
Regulatory hurdles lie ahead
Peter Cohen served as the chief regulator in Victoria for eight years before transitioning to consulting with The Agenda Group. He told iGB that the Bally’s deal is “interesting in that it puts another American company in charge of an Australian casino business”. This was a reference to Blackstone, which purchased fellow operator Crown Resorts for AU$8.87 billion in 2022.
Cohen posited that “the great unknown” is whether New South Wales and Queensland regulators will pursue their current disciplinary actions against Star given the ownership transfer. Star’s casino licences in both states are currently suspended and pending further review. The company is also expected to receive a significant fine from AUSTRAC, the federal financial crime watchdog.
When Blackstone took over Crown, state regulators lauded the changes but ultimately held steady in their punishments. In Victoria alone, Crown paid hundreds of millions in fines, in addition to a AU$450 million AUSTRAC penalty. Star could very well face similar penalties in the near future.
“Certainly, we know Blackstone discovered that the Victorian regulator was unforgiving,” Cohen said. “It remains to be seen what happens in New South Wales and Queensland. However, under this proposed arrangement, the Star entity continues to exist, so it is understandable why disciplinary action by way of significant financial penalties could still be taken by the Queensland and New South Wales gaming regulators.
“In addition, it is difficult to see how AUSTRAC will agree to forgo a large financial settlement for previous AML breaches.”