Revealed: Star Entertainment, Crown sought mega-casino merger talks

Both operators were looking for a combination in a bid to boost the performance of their under-pressure Sydney casinos.

It is understood Star’s then under-pressure board was open to operating under a joint venture structure in Sydney that would combine Crown’s Barangaroo ­casino and Star’s Pyrmont operation under a single licence.

Casino operators Crown and Star planned initial merger talks in recent months with an eye to combine their Sydney operations.

However, the timing of the discussions were cut short in February when the NSW gaming regulator blindsided the industry by launching a new inquiry into the troubled Star.

It is understood Star’s then under-pressure board was open to operating under a joint venture structure in Sydney that would combine Crown’s Barangaroo ­casino and Star’s Pyrmont operation under a single licence, with both sides owning the proportional value of the merged business based on the assets they would tip into the venture.

This would result in one operator of the two Sydney casinos, with earnings to be split between both owners.

Wall Street asset management giant Blackstone paid more than $8.9bn for the then James Packer-controlled Crown in mid-2022. Picture: Tom Parrish

However, the Blackstone-controlled Crown was pushing for a full takeover that would have delivered it the Sydney, Gold Coast and new $3.6bn Queens Wharf casino in Brisbane. The nature of the talks were exploratory and there was no suggestion that any takeover would be a certainty.

Star, which now has a new board and chief executive, has declined to comment.

Blackstone declined to comment.

There is no suggestion talks have been rescheduled since February or are ongoing.

Multiple sources have told The Weekend Australian exploratory talks were planned to take place in Melbourne on February 19, and logistics for the meeting had been organised.

Since then there have been questions over Star’s future in NSW, amid clashes last year with the state’s gaming regulator.

In NSW Crown operates table play only. Picture: Max Mason-Hubers

And Star’s shares have been on a wild ride since February, first with the sudden exit of chief Robbie Cooke and then another board shake-up. The Sydney-based casino operator has a market capitalisation of about $1.4bn. This is well below the value of the property and other assets sitting on its balance sheet. Former Lendlease and Crown CEO Steve McCann was late last month named Star’s new chief executive.

Significantly, the planned talks between Star and Crown were called off just days before the NSW Independent Casino Commission announced it was launching another full-scale inquiry into whether Star was fit to hold a ­casino licence, appointing Adam Bell SC to oversee the review.

There are serious questions over whether The Star can retain its gaming licence in NSW. Picture: NCA NewsWire/Damian Shaw

That announcement from the NICC resulted in Star’s shares sliding as much as 20 per cent ­during a single session. There was no suggestion that either Star or Crown or any of their bankers were aware that another NSW inquiry into Star was coming. Star’s top executives were only told of the inquiry 30 minutes before it was announced.

It was those hearings into Star in April that prompted a wave of management and board upheaval.

Wall Street asset management giant Blackstone acquired Crown and its Sydney, Melbourne and Perth casinos in mid-2022 for $8.9bn, representing one of its single biggest investments in Asia.

Crown was previously controlled by billionaire James Packer, who agreed to a deal after a round of negotiations.

At the time of the acquisition, Mr McCann was chief executive of Crown overseeing that casino’s overhaul following its own tangle with authorities and anti-money-laundering regulator. Mr McCann stepped down from Crown when Blackstone took control. Before joining Crown, Mr McCann had been the long-serving chief of Lendlease, the developer that built Crown’s $2bn Sydney tower.

Former Star chief executive Robbie Cooke resigned after clashing with the NSW regulator. Picture: David Clark

Star’s banker, Barrenjoey, was not scheduled to be present at the February talks. On the other side, Crown’s Australian boss, Ciaran Curruthers, was believed to have been planning to attend.

Mr Curruthers is understood to have been on leave at the time involving a family function.

Star’s then CEO, Mr Cooke, and at least one board member, understood to be then chairman David Foster, had been planning to meet the Crown executive and adviser, the former PwC executive Luke Sayers, as well as a Blackstone representative.

Blackstone declined to comment. Mr Cooke could not be reached. Mr Foster did not return multiple calls.

Adding to uncertainty in February, both casinos each had their NSW licences suspended until they could prove they were suitable operators. Crown has since won back its NSW licence.

The NICC appointed Mr Bell to conduct a second investigation into Star to gauge whether the ­casino was suitable to be granted its licence back. Mr Bell’s initial probe in 2022 said widespread structural change was needed after Star’s management was found to have been lax on controls and had sidestepped money-laundering rules.

This prompted a wholesale management shake-up, including the appointment of Mr Cooke and Mr Foster later that year.

Former Crown boss Steve McCann is Star’s new CEO. Picture: Richard Dobson

While the approach has since gone cold, any talk of a merger would put the companies at odds with NSW’s Minns government, which is understood to be firmly opposed to the combination of the two casinos under the once licence given the potential for job losses in Sydney.

A combination would put in doubt hundreds of millions of dollars in future hotel or redevelopment investments in the city. Any tie-up would also trigger competition concerns around suppliers, venue and hospitality services in particular.

In April, NICC chairman Philip Crawford declared Crown was the “safest place to gamble” in NSW, as he declared the operator had rebuilt its business and overhauled its culture.

Some 18 months earlier, Crown was declared unfit to hold a gaming licence in NSW after it had become embroiled in a money-laundering scandal at its Mel­bourne operation.

Even with its return to suitability, Crown’s new $2bn Sydney casino operates under a conditional licence, which means it is limited to table play only.

This style of business generally relies on high-rollers, and the market has since collapsed, particularly among international tourists, with Australian casinos having stamped out the use of ­junket operators.

Crown’s Barangaroo tower was commissioned by James Packer at a cost of $2bn. Picture: Chris Pavlich

The move to cashless gaming has also affected turnover. Star is scheduled to move to cashless operations in Sydney later this year.

Star’s Sydney casino has a full licence that allows it to offer table play and poker machines, which generate more stable cashflows. However, it competes more ­directly for patrons against the state’s clubs, which are not subject to casino tax. The Minns government’s increased casino levy, combined with the introduction of cashless gaming play, has hurt returns for both operators. Crown in Melbourne and Perth has a full ­licence for table play and pokies.

Last year, Crown closed one of its two VIP gaming floors. Then in April it said it would slash up to 1000 jobs across Australia, blaming gaming restrictions and a drop in tourist numbers.

It is understood the rationale for a tie-up between the two operators was based on three areas.

This involved substantial savings on staff and back office management. It would offer the ability to consolidate parts of the property, with Star having excess floor space. There was also the prospect of sharing regulatory costs, particularly in NSW.

Star last month issued a profit warning saying revenue was being pressured by a challenging economic environment. At the same time it was hit with increased costs as a result of regulatory demands.

NICC chief commissioner Philip Crawford. Picture: Jane Dempster

Mr Cooke resigned from Star at the end of March, citing a falling out with the regulator. Mr Foster then stepped in as executive chairman. He resigned as chairman at the end of April, amid suggestions raised in the Bell inquiry that he too had lost confidence of the regulator. He was replaced by existing director Anne Ward.

Mr Bell’s five-week inquiry into Star officially ended in May, with his report expected to be completed by the end of July.

In the report, Mr Bell will recommend whether Star is suitable to retain its Sydney casino licence, which is currently being held by a special manager.

The final weeks of the Bell inquiry was marked by drama with talk that US hospitality giant Hard Rock was about to make a bid for Star dashed when it emerged local bidder Patrick Farrugia was using the Hard Rock name without authorisation as part of a so-called consortium of investors.

johnstone@theaustralian. com.au

Originally published as Revealed: Star Entertainment, Crown sought mega-casino merger talks