Australian casino company Star Entertainment Group has proposed a merger with under pressure rival Crown Resorts, setting up a bidding war with US private equity investor Blackstone.
Star said on Monday its all-stock offer for Crown would create a A$12bn (US$9.4bn) entertainment and tourism business listed on the Australian stock exchange and unlock up to A$200m in annual savings for the combined group.
The proposal from Star was announced minutes after Crown disclosed that Blackstone had boosted its takeover offer by 50 cents per share to A$12.35 per share, making it a potential A$8.3bn transaction.
Crown, Australia’s biggest casino company by market capitalisation, said it was reviewing both proposals.
The fight over Crown was initiated by regulatory problems at the group, which a government-commissioned inquiry found had facilitated money laundering at its casinos.
Shares in Crown, whose biggest shareholder is Australian billionaire James Packer, jumped more than 7 per cent on Monday to their highest level in almost two years as investors anticipated a battle for control of the group.
“You’ve got companies circling Crown, albeit in very different ways, looking to capitalise on pessimism which we think was overblown,” said Angus Hewitt, an analyst at research company Morningstar.
Packer will be pivotal to any agreement. He has signalled that he was willing to sell in light of the regulatory hurdles facing Crown and his personal circumstances.
The billionaire resigned from Crown’s board of directors in 2018, citing mental health issues.
A year earlier, 19 of the group’s employees were convicted of gambling offences in China. The Australian government inquiry into Crown, which was published in February, criticised Packer and said his capacity to “remotely manoeuvre” operations must cease for the health of the company.
Crown, which owns casinos and hotel resorts in Sydney, Melbourne and Perth, has also attracted a third suitor. US investment fund Oaktree Capital has offered to loan Crown A$3bn to buy back 37 per cent of its own shares, which are owned by Packer’s private investment vehicle, Consolidated Press Holdings.
Analysts have speculated about the merits of a tie-up between Star and Crown for several years, although there may be regulatory hurdles regarding the impact on competition and the need to amend the former’s casino licences.
Rod Sims, chair of the Australian Competition and Consumer Commission, said on Monday the watchdog would conduct a public review in the event of any deal.
Star is offering 2.68 of its shares for each Crown stock under its proposal, which it said implies a value of A$14 per share. It has also offered a cash alternative of A$12.50 per share for as much as 25 per cent of Crown’s issued shares.
Kelly Amato, an analyst at Fitch Ratings, said a merger would limit the amount of additional debt the new entity would need to take on.
“The proposed creation of a property trust would give the new entity additional flexibility to manage its capital structure post-transaction,” she said.