Star on rise in Crown battle

THE real battle for Crown Resorts is just getting under way with rival suitors The Star Entertainment group and private equity group Blackstone needing to sweeten the pot to get their deals over the line, according to analysts.

But they say that Star, helped by a share price surge, has the edge and point to a multi-billion dollar property spin-off being a key element of its plans to boost value.

Star’s formal entry into the contest on Monday, with an indicative proposal to merge with Crown using a mix of scrip and cash, was worth $11.28 to $11.59, depending on the balance between these elements.

But Star argues the merger will unlock substantial value for all shareholders with estimated pro-forma values per share of more than $5 for itself, and more than $14 for Crown.

It would get there by costcutting, a massive property sale and leaseback deal and a stock rerating.

Meanwhile, Blackstone bumped up its cash bid to $12.35 a share and says it can execute a deal later this year.

E&P Financial Partners analyst Sacha Krien says Blackstone is offering cash today, while Star is offering more upside tomorrow.

He is bullish on the potential synergies of putting the two gaming empires together, and says “value creation” could result in a pro-forma share price as high as $16 a share for Crown shareholders and $6 a share for Star investors.

This could include more than $3bn of value from a sale and leaseback transaction and he dubs the completion risk as similar for the two bids.

“On balance, we believe Star’s proposal is superior to Blackstone’s current bid,” Mr Krien said, pointing to James Packer’s Consolidated Press Holdings (CPH) likely taking a positive view of the bid.

“We believe Star’s bid may also be viewed more favourably by CPH (37 per cent Crown shareholder),” he said.

The offer could work for Mr Packer due to the prospect of capital gains tax rollover relief, a reduced stake in the combined business to appease regulators and the opportunity to remain the largest shareholder in a globally relevant casino operator. But the fight is not over.

While Crown’s share jump in the wake of Star’s proposal suggests Blackstone will need to materially increase its bid to prevail, E&P estimated that Blackstone could pay up to $13.50 a share and still hit demanding return hurdles.

Mr Krien says Star may also need to improve the merger ratio to win the support of Packer and Crown’s Helen Coonan-led board.