The move by Star Entertainment to withdraw its $12 billion bid for the troubled Crown Resorts group raises the question of whether James Packer’s casino group may now be a break-up play.
With Ray Finkelstein’s royal commission in Melbourne reminding the company that Crown’s licence to operate in Victoria has some clear Melbourne First conditions, and with the company facing different regulatory challenges in New South Wales and Western Australia, it could be that the best solution would be for the company to be broken up.
The Star’s move to withdraw the conditional, non binding bid it launched in May signals that it no longer wants to be morally bound to the offer.
But it also clearly signals it is “open to exploring potential value enhancing opportunities with Crown” once its future conditions of operation in the three states are more certain.
The Star estimated at the time of its offer that it could value the company’s shares as much as $14 each, compared to the current price of $10.25, including the value of cost synergies of between $150m million and $200m a year.
While that estimate was seen as on the optimistic side, even at this time, The Star’s life would be a lot happier and its strategy a lot clearer if it can get its troublesome competitor in Sydney out of the market.
The Star, which has never been happy with Packer’s walk-up start in NSW at a time when it thought it had the right to be the sole casino operator in the state in the form of an “unsolicited proposal” to the O’Farrell government, is mainly interested in owning Crown’s hotel and casino group at Barangaroo.
Owning the second Sydney casino would give it control of the casino market in NSW, the same way that it has in Queensland where it has hotels and casinos in Brisbane and the Gold Coast.
Bidding for the whole Crown group is a big ask for The Star and could raise competition issues for being too powerful.
The Star move comes as there is speculation that a consortium in Perth may be looking at bidding for Crown’s Burswood operations.
There is also speculation that the Andrews government could strip Crown of its licence to operate and move to place an administrator into the Crown casino in Melbourne until it can find a new owner.
Again it is not out of the question that a Melbourne-based consortium could be put together to run Crown Melbourne - taking the company back to its original roots.
There are ongoing uncertainties and different issues for Crown with regulators in each of the three states. Crown’s actions in Melbourne have spilled over adversely to its operations in Sydney and Perth.
With Victoria having been embarrassed by NSW’s Bergin inquiry over its loose regulation of Crown’s operations in Melbourne, the Andrews government is under heavy pressure to take a firm line with Crown Melbourne.
At the same time Crown chair, former NSW senator Helen Coonan, appeared to be well on the way to negotiating a deal with the NSW Independent Liquor and Gaming Authority to open soon, or at least that is before the latest developments in Victoria’s Finkelstein inquiry.
Standing quietly in the wings is also private equity group Blackstone, which launched its bid for Crown in May and which is still quietly going through the necessary probity approvals in NSW, Victoria and Western Australia.
But there is no telling how long those might take.
If history is a guide in New South Wales, it could take more than a year (as it did for Malaysia’s Genting casino group which was interested in The Star) and that is a long time for Crown shareholders to wait.
The Star has plenty on its plate with a $3.6 billion development at Brisbane’s Queens Wharf, set to open at the end of next year. and a hotel and apartment block under construction next to its casino on the Gold Coast.
The Star made it clear on Friday that it will “closely monitor” the results of the royal commissions into Crown in Melbourne and Perth.
It has been a good week for Star chair John O’Neill, a former sports administrator as well as an experienced businessman, who has been a long time supporter and adviser to the Brisbane bid for the 2032 Olympic Games.
He has had the double gifts of the announcement by counsel assisting the royal commission in Victoria that it believes Crown is not fit to hold a casino licence, as well as the confirmation of Brisbane’s bid for the 2032 Games.
What a week!
Star may have withdrawn its bid for Crown, (which it was never bound by anyway) but it is still a player in the game, potentially having reduced the cost of any future bid.
Helen Coonan’s strategy of trying to work through the issues with the regulators in three states and keeping Crown as a standalone, independent company, is proving much more difficult to achieve.
And she herself will soon leave the company, raising the question of just who will be running the show at Crown after its annual meeting later this year?
There are many scenarios of how Crown’s future will play out but a break up of the company into three different groups, with Star potentially picking up the hotel/casino at Barangaroo, remains a likely outcome.
While John O’Neill is keeping his cards to his chest, he also has the history of successful dealings with Hong Kong’s Chow Tai Fook group, which is a player in the non-gaming side of its developments in Queensland.
It is not out of the question that The Star could focus on a bid for the Sydney assets and then seek to lay off its costs by doing a deal for the property assets at Barangaroo with a third party.
The story of the house that James Packer built still has a long way to play out.
One can only wonder what he thinks about the value of his once-shining jewel of a business as its suffers a thousand ignominious cuts with no clear outcome in sight.
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