Star Entertainment proposes $12bn merger with Crown Resorts

James Packer is understood to be open to a proposed merger of his 37pc-owned Crown Resorts with smaller rival Star Entertainment.

Key to Crown’s future – James Packer. Picture: Aaron Francis

Billionaire James Packer is understood to be open to a proposed merger between his 37 per cent-owned Crown Resorts with smaller cross-town rival Star Entertainment, which would allow him to bet on the growth in the combined casino major as well as cash out some of his holding.

Under the Star merger proposal Mr Packer has been granted an opportunity to bet on future which could see his Consolidated Press Holdings emerge with as much as 10 per cent in the $12bn gaming giant.

The equity option is not available to him under alternative cash proposals by private equity groups Blackstone or Oaktree.

The Star-Packer option comes as the NSW Bergin inquiry, which found Crown unsuitable to operate its Sydney casino, recommended no individual shareholder in a casino company hold more than 10 per cent without regulatory approval, citing Mr Packer’s “deleterious” influence on Crown in years past.

Crown Resorts on Monday said it had received an indicative proposal from the smaller Star to merge by way of a scheme of arrangement consisting of a nil-premium share exchange or alternative cash offer.

The move came as Crown Resorts also named long-serving Lendlease CEO and managing director Steve McCann the new CEO of from June 1, subject to regulatory approvals. This gives Crown investors a management path forward if both takeover bids fail to win over investors.

The merger could create a company with a casino in Perth, Melbourne, Brisbane and the Gold Coast as well as two in Sydney – re-establishing Star as the only casino operator in town.

It would combine the Star which is capitalised at $4bn with the $8.2bn Crown. It would also create an entity with more than 20,000 employees and more than 4,600 hotel rooms across Australia.

Star’s share exchange option would see each Crown Resorts shareholder receive 2.68 Star shares for each Crown share.

The cash alternative offers Crown shareholders $12.50 per unit, subject to a cap equal to 25 per cent of Crown’s total shares on issue.

Crown’s share price lifted 7.3 per cent through the day to close at $13.00, a level not seen in two years, while Star climbed 7.7 per cent to close at $4.21.

Crown’s current shareholders would own 59 per cent of the new company while Star shareholders would own around 41 per cent, with the board to be comprised of current Crown and Star directors.

The offer comes as US private equity giant Blackstone boosted its $8 billion takeover proposal for Crown Resorts in a bid to end the seven-week stalemate over its initial approach for the company.

Separately, private equity group Oaktree has also proposed a $3bn line of credit should Crown Resorts choose to buy back “all or some” of Mr Packer’s stake in the company.

The Star Casino in Sydney.

Star CEO Matt Bekier said Monday that the nil-premium offer was offset by the $150m-$200m in anticipated annual synergies that could be realised by a merger, which Star believes is worth $2bn to the business, or about $3 per share.

In addition to synergies, Star said that more value could be unlocked through a sale and leaseback of the merged entity’s property portfolio while the combined group could eventually be re-rated to enjoy the increased liquidity of an ASX 50 company.

Last month the NSW Independent Liquor and Gaming Authority reached an agreement with Consolidated Press Holdings that constrained their ability to influence Crown Resorts for three years, and it is understood this will continue to apply to any new entity Crown has a stake in.

Mr Bekier told The Australian The Star had engaged Consolidated Press’ advisers Moelis regarding the offer, and that he was happy to work with regulators in all states to ensure they were content with Mr Packer’s shareholding in any new entity.

“We assume … that we would need to negotiate the appropriate conditions if Consolidated Press were to continue to be a very large shareholder,” he said.

“If this merger goes through, this may be a way for them to catch a lot of value and then gradually step out over time.

“All of those things we need to work out over the next little while.”

Star will also have to convince its own shareholders and Crown shareholders other than Mr Packer if they want the merger to happen.

Anton Tagliaferro, investment director of Crown shareholder Investors Mutual, said Star’s offer still undervalued Crown.

“It is a very logical thing to happen because combining the two groups will create a world-class casino group,” he said.

“But the bid is far too low, it‘s really to just start negotiation. It undervalues Crown significantly.

“The ratio of 2.68 Star shares is not adequate but it opens discussions.”

Lendlease CEO Steve McCann will take over as boss of Crown Resorts. Picture: Britta Campion

Star will also have to be granted probity by each of the state gaming regulators and receive approval from the Australian Competition and Consumer Commission.

Mr Bekier said Star had already alerted the state regulators of the offer and had begun “substantive engagement” with the ACCC, who will scrutinise the deal.

“The ACCC has a process of dealing with these sorts of situations and have indicated to us issues they would want to investigate as part of that process,” he said.

“They indicated that they would seek to have a public inquiry into the competition issues, but from our point of view we think we are on pretty good ground to get this through.”

A spokesman for the ACCC said the competition regulator had would “wait for a submission and commence a public review after that, if the matter progresses.”

Analysts at JPMorgan said they did not expect the ACCC to be a “significant hurdle” to the deal, with the approval process of state regulators more likely to drag on.

Star also faces a problem in Blackstone, who is now offering $12.35 per share to all shareholders, a $0.50 cent increase on their previous offer.

The James Carnegie-led firm believes it is just as experienced a casino-hotel operator as Star, owning and operating integrated casino and hospitality venues in the US and Europe.

The private equity group is also confident it will receive regulatory approval to take over Crown by around August, and has pledged to take on risks associated with the outcomes of royal commissions into the company in WA and Victoria, as well the recommendations of the NSW Bergin Inquiry.