On Monday, Australian casino operator Star Entertainment Group proposed an all-stock acquisition of larger rival Crown Resorts Ltd in a deal that valued at $7 billion (A$9 billion); the deal sees Star Entertainment Group tying up with two private equity giants for control of the troubled target.
As part of the deal, Star has proposed to give 2.68 of its shares for each share of Crown, and estimated Star shares would be worth A$5 each if the deal went ahead, up from A$3.91 at their last close, thus implying a A$9 billion sale price.
Star’s move underscores a strong interest in a company which has prized real estate and tourism assets on both of Australia’s coasts and comes at a time when the company’s revenues and share price has been significantly affected, like much of the tourism industry, by the coronavirus-induced COVID-19 pandemic, resulting in border closures and increased regulatory overheads.
On Monday, Crown faces the start of one of three state inquiries into its operations and comes in the wake of another state finding that it had knowingly dealt with tour operators linked to organised crime, enabled money laundering on its premises, and disregarded the safety of staff in China who were jailed in 2016 for breaching its gambling ban.
“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 attractive integrated resort operators in the Asia Pacific region,” said Star’s chairman John O’Neill in a statement.
Star is exploring a sale and leaseback of some of the combined companies’ property portfolio, thereby freeing up some cash.
With the news reaching the market, shares of both companies surged with investors taking a rosy initial view of the benefits of the proposed tie-up. Crown’s stock jumped by 4.5%, hitting its highest intra-day level since January 2020, while Star’s shares surged by 10% to its highest since February 2020.
Star’s intraday peak of A$4.30 would value the deal at A$7.8 billion. The jump in Crown shares gave it a market capitalisation of A$8.8 billion.
According to John Ayoub, portfolio manager of Wilson Asset Management which has shares in both companies, Star’s proposal “has the synergies, and then the sale-and-leaseback provides the firepower to do buybacks to realise full value for both sets of shareholders”.
According to Star’s estimate, its proposal could generate cost synergies of between A$150 million and A$200 million a year.
Any deal would likely need approval from Australia’s competition authorities.
($1 = 1.2739 Australian dollars)