End game nearing from NSW’s war on Star casino

With Star at its most vulnerable, there are plenty more predators waiting in the wings. Is this the outcome NSW really wants?

Star Entertainment says it has received several takeover approaches. Picture: Ian Waldie/Bloomberg

Billionaire Bruce Mathieson holds the keys to Star Entertainment’s future, and the pubs and pokies boss sees a big future for the casino’s Queensland business.

The inevitable outcome of NSW government’s war on the deeply troubled Star is for the casino to be broken up, turned private and possibly end up in foreign hands. All at an eye-watering deep discount.

This could create the situation where the earnings from two of the Sydney’s key tourism assets – the other being Crown – are controlled by owners thousands of kilometres away.

Several suitors have approached Star company about a possible deal in recent weeks.

One of these is an approach from the Asian hotel operator Hard Rock Hotel & Resorts, an entity linked back to privately-held Las Vegas casino group Hard Rock Hotel & Casino (operator of the Virgin Hotel resort in the gambling capital).

Billionaire Bruce Mathieson is interested in a break-up of Star’s business. Picture: Courier Mail

On Monday, Star said “the nature of the interest to date has been confidential, unsolicited, preliminary and non-binding”. The initial reaction from Star’s board suggest the approaches are more about tyre kicking than anything more serious. However, the casino’s board can barely hold a united front, let alone mount a robust defence.

Other players in the wings are thought to be Star’s former long-time shareholder, Malaysia’s Genting Group, which sold out in 2017 for its big US expansion where it developed Resorts World Las Vegas.

Genting’s chairman Lim Kok Thay is thought to have retained a keen interest in Australia, although his company is keen to expand further into the US. It took several years, but Genting eventually secured approval for its 10 per cent stake in Star from the NSW government last decade, then made its exit.

Star’s new Queens Wharf development in Brisbane is set to open soon.

Elsewhere, rival operator Crown, now owned by New York-giant Blackstone, is keeping its cards close to its chest. Crown needs a full-service licence to operate pokies to deliver higher returns in needed Sydney, but US giant likely to have its hands full on increasing demands for a monster investment needed in Melbourne’s ageing Crown complex.

And then there’s Mathieson who has been quietly upping his stake so that it now sits at 9.6 per cent. However, Star would be too much of a big bite to take on his own, but he is keenly interested in a break-up. Star has a 10 per cent shareholder cap, which would also make it vulnerable as other investors look to build a blocking stake.

All about property

While there are real doubts over the future of Star’s licence in Sydney, the casino operator has inherent book value.

Star’s share price plunge to record lows has seen its market capitalisation fall to $1.3bn, just half the $2.5bn in net assets sitting on its balance sheet, including debt.

The property alone is valued at $1.7bn, and there’s another $700m in joint venture holdings, which counts as the additional investment in the soon-to-be opened $3bn Queens Wharf complex and apartments in Brisbane.

And it’s in the growth market of Brisbane and the tourism hotspot of recently refurbished Star Gold Coast is where Mathieson sees future value.

However, the question for any possible suitor is whether the loss of the Sydney licence would collapse the inherent value of the 300-room refurbished hotel on the Pyrmont site and whether that would put Star’s Queensland operations in doubt.

A new owner would also be seriously asking whether the political theatre favoured by NSW’s casino regulator and chances of securing the gaming license permanently, would be worth the financial risk.

Star’s former chairman David Foster appears at the NSW inquiry into The Star.

Still, the nibbles have been made while Star is at its most vulnerable. And comes with the extra spice of NSW running its royal commission-style inquiry.

Indeed, without a full-time chief executive and several top executive posts, another round of boardroom exits likely; a looming fine to be negotiated with financial crimes regulator Austrac; and a NSW government-backed inquiry lobbing-bombs at it daily; it’s no surprise Star’s shares are just a fraction of what they have previously changed hands.

Then there is the very real question over whether it can keep its licence follow the painful NSW-backed inquiry.

The Star board is deeply divided over former chairman David Foster, who remains as a director and now acting chief executive. Meanwhile, momentum on a business rebuild and cultural reform efforts have all but disappeared in the wake of the forced exit of former chief executive Robbie Cooke. Add to this, Queensland regulators are closely watching NSW’s lead on what to do with the fallen casino.

Takeover approach or not, Star’s path to survival in its current form is very narrow indeed.

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Originally published as End game nearing from NSW’s war on Star casino