Star withdraws Crown Resorts merger bid amid Victoria concerns

| By Robert Fletcher
Australian land-based operator Star Entertainment Group has withdrawn its proposal to merge with rival business Crown Resorts, citing concerns over ongoing regulatory processes with Crown in Victoria.
Victorian Government announces Crown extension

In May, Star put forward an indicative proposal to merge with Crown and create a combined operation worth approximately AUD$12.00bn (£6.43bn/€7.51bn/US$8.84bn). 

The non-binding proposal set out a share exchange ratio of 2.68 Star shares for each Crown share, valuing Crown shares at $14 each. Crown shareholders would also have been offered a cash alternative of $12.50 per share, up to a maximum of 25% of Crown’s issued share capital.

This would have seen Crown shareholders own 59% of the combined business and Star shareholders the remaining 41%, with the merger estimated at creating cost synergies of between $150m and $200m per year.

However, Star today (23 July) withdraw its proposal, saying that it had limited engagement with Crown throughout the process.

Crown also said issues raised at Victoria’s Royal Commission into Crown Melbourne and the potential to materially impact the value of Crown, including whether it retains its licence to operate the Melbourne casino or the conditions under which its licence is retained, were factors in the decision to withdraw.

The full outcome of the regulatory process is yet to be determined, but earlier this week, the counsel assisting the Commission into Crown told the inquiry that Crown is still “not a suitable licensee”. He pointed to AML failings and tax evasion efforts, and argued that Crown may never be seen as suitable in the oublic eye.

In May, Crown was ordered to pay a total of $22.5m as part of measures set out by the New South Wales Independent Liquor and Gaming Authority.

Crown must pay $12.5m towards the inquiry, and also pay an annual Casino Supervisory Levy of $5.0m in both FY2021 and FY2022, after the regulator found Crown “unsuitable” to operate a casino in the Barangaroo district of Sydney in February. 

However, despite these concerns, Star said it still believes “substantial benefits” could be unlocked by a merger with Crown, but the current uncertainty meant it was unable to continue at the present time with the merger.

“The Star remains open to exploring potential value enhancing opportunities with Crown,” Star said. “The Star will continue to closely monitor the Victorian Royal Commission and Perth Casino Royal Commission, with final findings expected later this year.”

Responding to the announcement, Crown said it remains willing to engage with Star on a potential merger in the future.

“The board is committed to maximising value for all Crown shareholders and will carefully consider any proposal that is consistent with this objective,” Crown said.

“Crown is continuing to implement its Reform Agenda. Crown will also continue to fully co-operate in relation to the various regulatory processes.”

Aside from the Star proposal, Crown also received a number of other offers regarding the future of is business

Private equity giant Blackstone Group in March put forward an offer of $8.02bnto acquire the remaining shares in Crown, having already acquired 9.99% of the business in April 2020 with the purchase of a stake from Melco.

Blackstone then increased its offer to $12.35 in cash for each Crown share, up 4% increase on the previous offer of $11.85 per share submitted, but Crown rejected this proposal, saying the offer undervalued its business.

In addition, alternative investment management business Oaktree Capital Management last month put forward a funding proposal worth $3.1bn. Crown’s board has not yet formed a view on the proposal.

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