Star pulls Crown merge bid as board meets to discuss Coonan successor

The Star left the door open to hashing out future deals with the James Packer-backed casino.

The Star CEO Matt Bekier, with Crown’s Barangaroo tower in the background. Picture: Toby Zerna

Pressure is building on Crown Resorts to consider a break-up option after cross-town casino and hotel operator rival Star Entertainment pulled its $12bn merger offer, citing concerns over the future of Crown’s Melbourne casino licence and a lack of engagement from the gaming company’s board.

Even so, The Star left the door open to hashing out future deals with the James Packer-backed casino as Crown faces the prospect of being forced to sell some of its operations in the face of damning criticism from regulators. It is believed The Star is more interested in securing Crown’s Sydney casino rather than its sprawling Victorian operation. At the same time a separate consortium is thought to be eyeing Crown’s recently refurbished Perth casino.

The move came as the Helen Coonan-led Crown board met on Thursday night to discuss who would succeed her as chair, with board newcomers Nigel Morrison and Bruce Carter believed to be the leading candidates.

Early Friday The Star said it would rescind the May offer, which featured a share-exchange option and cash alternative. The share-exchange option would have seen 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.

The Star cited a lack of engagement from the Crown board as well as uncertainty caused by counsel assisting the Victorian royal commission into Crown on Tuesday recommending it be found unsuitable to operate Crown Melbourne.

The Star decision also comes as it doubles down its exposure to Queensland, after Brisbane was this week named as the host city for the 2032 Olympics.

“To date, The Star has had limited engagement with Crown on its proposal,” the Sydney-headquartered Star said.

“Also, issues raised at Victoria’s royal commission into Crown Melbourne have the potential to materially impact the value of Crown, including whether it retains the licence to operate its Melbourne casino or the conditions under which its licence is retained.”

Counsel assisting the Victorian royal commission into Crown have urged it be found unfit to run its Melbourne casino. Picture: David Crosling

For its part Crown said it “remains willing to engage” with The Star in relation to a potential merger on terms acceptable to both Crown and The Star.

“The board is committed to maximising value for all Crown shareholders and will carefully consider any proposal that is consistent with this objective,” Crown said a statement.

The move comes just two months after Crown knocked back a $8bn takeover offer from US private equity group Blackstone, meaning a $3bn offer to fund the buyout of Mr Packer’s stake in Crown from Oaktree is the only offer that remains on the table.

But The Star also said it remained open to future deals and that it would watch the progression of the Victorian and Western Australian royal commissions into Crown.

While the Victorian probe is due to report October, late on Friday Western Australia’s McGowan government pushed back the reporting timeline four months to March next year.

The extension followed “a request from commissioners for more time to carry out their investigations,” the Western Australian government said in a statement.

The extended timeline will enable the Perth casino royal commission to ensure findings and recommendations from Victoria’s inquiry “can be fully considered”.

Star said it “continues to believe substantial benefits could be unlocked by a merger”.

However the uncertainty surrounding Crown is such that The Star is unable to continue at the present time with its proposal in the form as announced on May 10,” it said.

“The Star remains open to exploring potential value-enhancing opportunities with Crown. The Star will continue to closely monitor the Victorian royal commission and Perth casino royal commission, with final findings expected later this year.”

The events of the Victorian royal commission have increased expectations that Crown may have to divest its Melbourne casino, with the inquiry’s commissioner Raymond Finkelstein indicating that one reading of the casino’s original agreement with Victoria is that it must be a Victorian-owned and operated entity.

It is likely Ms Coonan will be replaced by a Victorian-based candidate as chair after she steps down from the role, a point in the Melbourne-based Mr Morrison’s favour against Mr Carter.

Mr Morrison, who was appointed to the Crown board in January this year is considered the more likely given his longer experience and the fact that he has passed the necessary probity reviews by the three regulators.

Mr Morrison has more than 20 years’ experience in the casino business in both Australia and Asia, previously being the CEO of Sky City, chief financial officer of the Galaxy Group and chief operating officer of Crown Melbourne in the 1990s.

But the Adelaide-based Mr Carter, who was announced as a director in April, is also considered a strong candidate.

He has had experience in the casino business, having been deputy chairman of the SkyCity Entertainment Group where he oversaw the expansion of Sky City Adelaide, while his experience as co-founder of the Ferrier Hodgson group in Adelaide had given him extensive corporate turnaround experience

Responding to The Star’s announcement on Friday, Crown Resorts said it remained willing to engage with its rival in relation to a “potential merger on terms acceptable to both Crown and The Star”.

“The board is committed to maximising value for all Crown shareholders and will carefully consider any proposal that is consistent with this objective,” it said.

When The Star first pitched the merger, it pointed to estimated cost synergies of between $150m and $200m and said more value could be unlocked through a sale and leaseback of the merged entity’s property portfolio.

The merger would have created a casino and resorts giant with properties in four states and a complete monopoly on the two casinos in Sydney: The Star at Pyrmont and Crown Sydney at Barangaroo, right across Darling Harbour.

The withdrawal of the offer will come as a blow to Crown shareholders, who have watched the Crown share price decline from post-Covid highs over the last two months as damaging evidence was unveiled at the Victorian royal commission.

Since May Crown’s share price has fallen more than 20 per cent since the middle of May when it was trading at over $13.00. On Friday Crown closed at $10.02, down 2.2 per cent. At these levels it is below the implied value of Star’s offer of $11.28 to $11.59 per share.

The exit of The Star will also come as a sting to Mr Packer, who was understood to be open to rival casino operator’s offer and could have emerged from the deal with a 10 per cent stake in the combined entity.

Anton Tagliaferro, investment director of Investors Mutual, said the withdrawal of the offer wasn’t surprising given the impact the royal commissions will have on both Crown and the gaming sector as a whole.

“I think the whole sector is seeing new regulations coming which will not only directly impact on Crown, but some of those rules are going to impact on Star and its operations on the way forward,” Mr Tagliaferro said.

“It’s not surprising, but I wouldn’t rule out discussions happening again when things are a bit clearer.”