Competition watchdog to hold public inquiry into Crown merger with Star casino group
The competition regulator will hold a a public review of a proposal to merge Australia’s two biggest casino groups after the Star Entertainment group announced a bid for its rival Crown Resorts, controlled by James Packer.
The Australian Competition and Consumer Commission (ACCC) chairman, Rod Sims, said he would conduct a public review of the merger proposal, which would result in a casino giant with operations in Sydney, Melbourne, Brisbane, Perth and the Gold Coast.
“We will do a detailed investigation. It will be a public review,” Sims said.
“It’s very early days. But we would look at the market for domestic table game customers,” he said. “We would look at the competition between Barangaroo and Star in Sydney.
“We would also look at the extent to which there is intercity competition for customers.”
Sims said he had not yet had contact with Star, but that he thought it would expect the ACCC would take an interest.
The proposal by Star was announced to the ASX this morning and involves a merger of the two groups to create a single casino operator which would have operations in most major capital cities. Only the casinos in Adelaide and Tasmania are owned by other groups.
Star would also take control of Crown’s Barangaroo high-roller casino, which is completed but has been prevented from opening after the New South Wales regulator, the Independent Liquor and Gaming Authority, found Crown was no longer suitable to hold a casino licence. Crown has been negotiating with the regulator over what steps it must take to become suitable.
The casino was potentially a serious threat to Star Sydney.
Star’s offer involves Crown investors being granted 2.68 Star shares. This does not include any takeover premium and is based on the three-month average price of Crown shares prior to 19 March, when Crown received another takeover offer, from the US private equity group Blackstone, causing its share price to jump.
But whether the offer is attractive to Crown’s largest shareholder, James Packer, who holds a controlling 37%, remains to be seen.
Packer revealed during probity hearings in Sydney that he was suffering from bipolar disorder and had been battling serious mental health issues.
After damning evidence about his role in Crown, Packer made it clear to the regulator that he would no longer seek to take an active management role in the casino empire he created. He is believed to be wanting to exit Crown altogether.
But the Star offer will pose a dilemma for the billionaire – and it is not just about price. The offer, which contemplates a cash alternative of $12.50 per Crown share, subject to a cap equal to 25% of Crown’s total shares on issue (with any scale back to occur on
a pro rata basis), would not likely allow him to exit entirely.
It would also see him in business with his fierce rivals. Star had sought to prevent Crown’s Barangaroo casino being built and at one stage Packer had taken a significant stake in Star, which was then called Echo Entertainment.
Crown, revealing the details to the ASX, said the board of the merged entity would initially comprise the current directors of each of Crown and Star.
Star has stated it estimates that a merger with Crown would result in indicative cost synergies of between $150m and $200m per annum.
Star has also indicated there is the potential to unlock significant value from a sale and leaseback of the merged entity’s property portfolio.
The Star offer has now sparked a serious bidding war for the casino group, which could yet see other players emerge.
Simultaneously, Crown announced it had received an enhanced offer from a company associated with Blackstone, which already holds 10% of Crown.
It has increased its offer by 50c a share to an indicative price of $12.35. The purchase would take place by way of a scheme of arrangement. The indicative offer price will be reduced by the value of any dividends or distributions declared or paid by Crown.
But it is likely that Packer will be hoping for a higher offer. In 2019, prior to the Covid-19 pandemic and the adverse findings by the Independent Liquor and Gaming Authority, Packer had struck a deal with his former Macau business partner Lawrence Ho for Ho’s company Melco Resorts to acquire 20% of Crown for $1.8bn. That valued the shares at around $14.00.
The Crown board has not yet formed a view on the merits of the bids now before it. It will be hoping that other potential suitors come forward, although with international travel restricted and a cloud remaining over Crown’s licences, the value of the company could be lower than Packer hopes.
Meanwhile, Crown announced it had appointed Steve McCann as its new chief executive officer and managing director of Crown, subject to the receipt of probity and regulatory approvals.
McCann is currently group chief executive officer of real estate and investment group Lendlease, a role he has held for more than a decade.
McCann last year delayed his planned retirement from Lendlease to lead the group’s response to the Covid-19 pandemic and will retire from the board on 31 May 2021. McCann will join Crown effective 1 June 2021.
The Crown chair, Helen Coonan, has been acting chief executive, after the Independent Liquor and Gaming Authority said it wanted the former chief executive, Ken Barton, to step down as part of the reforms to make Crown suitable.