Investment banks Macquarie Capital, Citi and UBS are believed to be at least running the numbers on a $10bn-plus merger of casino companies Crown Resorts and Star Entertainment.
Crown has a market value of $6.64bn, while Star is worth $3.34bn.
A tie-up between the pair has been mooted by analysts for the past six months. However, it is now understood that Macquarie is working for Star while UBS has traditionally been Crown’s banker.
Citi’s involvement may be with Star — potentially assisting with funding of any deal that emerges.
It comes ahead of the findings into the Crown inquiry being handed to the NSW Independent Liquor and Gaming Authority on Monday by former NSW Supreme Court judge Patricia Bergin.
The inquiry considered whether Crown should be able to hold a gaming licence in NSW after the inquiry shone a light on management and the handling of potential money-laundering in its Melbourne casino, the influence of billionaire James Packer on the company and criticism of the events around the arrest of Crown employees in China during 2016 amid claims of illegally procuring highrollers.
Investor sources say any deal where Star initiates a tie-up would need to involve scrip, given that Crown has a better balance sheet than Star, which would be unlikely able to borrow enough funds to embark on a cash transaction.
However, other market experts say Star would need to raise equity to buy at least half of the 37 per cent stake held by the interests of Mr Packer, who would be unlikely to agree to a deal without the payment of at least some cash.
Star’s most recent accounts show it has net debt is $1.38bn, equating to 4.9 times its earnings, while Crown had $891.5m as at June 30.
Market experts say Crown has a major competitive advantage with its lucrative casinos in Melbourne and Perth, where licences are not due to expire until at least 2050 and the construction of new casinos by competitors is deemed unlikely.
Star has generated 70 per cent of its earnings from its Sydney casino, but Crown’s new casino in the city’s Barangaroo precinct will result in it facing strong competition.
Crown has recently opened its newly built six-star hotel in a 71-storey building at Barangaroo that was proposed by Mr Packer in 2012.
Crown’s new 25-table members-only casino excludes gaming machines and the two floors of gaming rooms are yet to open as Crown awaits the findings into the inquiry.
The 80-plus multi-million-dollar apartments on the top storeys are also still being completed.
While some believe a merger between both casinos would not gain regulatory approval, analysts believe the competition is not considered a major area of concern when it comes to the casino industry, given that the high level of regulation inhibits the chance of price gouging.
The potential merger plan comes after Las Vegas gambling giant Wynn Resorts made an indicative bid for Crown Resorts in 2019 but later walked away from the $10bn merger.
Another potential bidder could be New York-based buyout fund Blackstone, which purchased a 9.99 per cent stake in Crown Resorts from Lawrence Ho for $550m in April.
Blackstone has owned Las Vegas casino Cosmopolitan, Hilton Hotels and the real estate of MGM’s Bellagio resort in Las Vegas.
A takeover would need government approval.
Crown’s property portfolio includes hotels and casinos in Melbourne, Perth and Sydney, as well as a development site in Queensland.
The buyout fund was one of several parties that held talks with Mr Packer’s private company Consolidated Press Holdings in 2015 about partnering in a potential privatisation of Crown, when it was chaired by former investment banker Robert Rankin and Mr Packer had left the board.
Meanwhile, market analysts are betting that the outcome of the Crown inquiry will lead to heightened regulation across all casinos, and that junket operators will either be banned or highly regulated, with Crown likely to retain its Sydney casino licence.
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