Crown Bidding War Continues; Star Interested in Merger

The Star Entertainment Group Limited tossed its hat into the ring and became a major contender in the race to be the new owners of under-fire Crown Resorts. The Star offered a merger deal with Crown, which Crown is considering.

The merger offer has a nil-premium share exchange ratio of 2.68 the Star shares per Crown share. A cash alternative of $12.50 per Crown share for up to 25% of Crown’s issue stock is another possible option.

A statement to the Australian Securities Exchange lists some key benefits of the merger.

• The merger creates a national tourism and entertainment leader with a world-class portfolio of integrated resorts.
• Between $150 million and $200 million of cost synergies per year with an estimated net value of $2 billion
• Unlock significant value from a sale and leaseback of the enlarged property portfolio
• An enhanced range of products and experiences for domestic and international guests
• Exciting growth opportunities only available through the merger

John O’Neill AO, Chairman of The Star, is unsurprisingly excited about a possible merger between the two arch-rivals.

“A merger of The Star and Crown would result in significant scale and diversification and unlock an estimated $2 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 attracted integrated resort operators in the Asia Pacific region.”

The Star Keen To Get Merger Ball Rolling

A merger of this magnitude is not typical and comes with a lot of work behind the scenes. The Star is keen to get the ball rolling and has hired Flagstaff Partners and Credit Suisse as financial advisers. King & Wood Mallesons are on board as legal advisers.

The Star is confident it can complete the necessary due diligence and provide debt financing documents within eight to twelve weeks.

“Given its existing relationships with governments and regulators and its proven track record of governance and compliance, The Star is confident it is well-positioned to obtain the necessary regulatory approvals for the merger.”

A possible merger throws the cat among the pigeons because several companies are interested in taking over Crown. They may still have a chance to do so even if the merger goes ahead. This is because The Star is actively seeking to sell and leaseback Crown if the merger goes ahead.

“We would seek to engage with a range of investors on a potential sale and leaseback (or similar structure) of the enlarged property portfolio during diligence.”

Blackstone Group Revises Its Acquisition Proposal

Crown’s directors have plenty of discussions ahead of them because the merger news looks to have started a bidding war.

American equity firm Blackstone Group was one of the first companies to show serious interest in acquiring Crown Resorts. Blackstone tested the waters with an $8.02 billion bid in late March, which sent Crown’s share skyrocketing. The bid was the equivalent of $11.85 per share and represented a 19% premium on the price at the time of the bid.

Crown did not accept or reject the bid, although experts believe rejection is the most likely outcome because they feel the offer undervalues the company.

Blackstone increased its bid by $0.50 per share (or 4%) upon hearing of the potential merger. Their new bid values Crown stock at $12.35 per share for 100% of the stock.

Oaktree Capital previously offered to purchase James Packer’s 37% Crown stake for $3 billion. It is yet to make a new move in light of the recent developments.

The possibility of a merger and the revised Blackstone offers makes it less likely BGH Capital will make an official bid. Acquiring Crown already looked a step too far for the firm. It is even more unlikely to happen now there is a bidding war.

Shares in The Star rose from $3.91 to $4.23 after news of the merger broke. They currently trade at $4.14. It was a similar story with Crown’s share price. It rose from $12.13 to a peak of $13.06 but now trades at $12.93.