Tuesday, August 9, 2022

Star, Crown Resorts Meet over Potential Merger

As Crown Resorts continues to fend off an assault on its reputation and viability as a casino operator, a number of companies haven’t wasted time approaching it to offer potential buyout deals. Oaktree Capital Group and the Blackstone Group were seen as the largest contenders, especially because of their deep pockets, but then Australia’s own Star Entertainment stepped in and put an offer on the table. While there is still a lot of work to be done and Crown might not ever be willing to negotiate, the Star arrangement makes the most sense. So much so that the CEOs of Australia’s two largest hospitality companies just met last week to explore their options.


Star and Crown Talk Merger

The Australian Financial Review reports that Steve McCann of Crown Resorts and Star CEO Matt Bekier got together to go over details of a deal initially put forward by Star in May. McCann has been running the show at Crown since the beginning of the month after having been appointed to replace outgoing CEO Ken Barton. Barton resigned, in part, due to the report by officials in New South Wales that determined the company was not fit to hold a license, and which started a cascade of investigations into allegations Crown was involved in money laundering and other criminal activity for decades.


Details of the conversation the two executives had last week haven’t been revealed. However, it seemed that Crown and McCann might be a little more amenable to working with Star on a potential merger than with any other company. Crown had requested that Star provide more details regarding its proposal about a month ago, and it now seems that the two companies might be ready to take a possible arrangement more seriously. The fact that these two CEOs have met, however, doesn’t mean that a deal is imminent.


A Lot of Details Still to Be Worked Out

One of the reasons a deal with Star might make more sense is that the company is already licensed across much of Australia, making a transition easier. However, monopoly concerns would invariably be raised and would have to be countered before regulators signed off on any arrangement. Still, the move would make a lot of sense for Crown shareholders, especially since the company is quickly losing ground as a result of the ongoing reports. Those investors would be on the winning end of any arrangement.


According to the proposal submitted by Star, Crown shareholders would retain 59% of the merged companies, with the remainder going to Star shareholders. In addition, there is the major check Star is ready to write for $7 billion (AUD$9B). According to Bekier, the merged companies would be able to benefit from as much as $150 million (AU$200M) in annual cost savings, which could also provide shareholders with additional incentives. As Crown continues to face scrutiny in Victoria and Western Australia, it’s likely to see additional fallout from the investigations. Trying to work a deal with Star now would prevent it from being forced by authorities to split up later.

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