Star pulls out of Crown merger talks

By Charlotte Lee Updated
Star Sydney has a new CEO

Australia’s second largest casino operator has withdrawn a multi billion dollar merger offer tabled to Crown Resorts.

The Age reports that Star Entertainment Group has withdrawn a $12 million merger proposal with its beleaguered rival, citing uncertainty over the James Packer-controlled firm retaining its casino licences in the wake of royal commissions in Victoria and Western Australia.

“We continue 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,” the company said in a release to the ASX.

The Star has left the door open to an alternative proposal with Crown, depending on the outcomes of the royal commissions, which could see Crown lose its licences, or face restrictions that would potentially decrease the benefits of a merger if Crown Melbourne is forced to operate separately of the Crown Resorts group.

“The Star remains open to exploring potential value enhancing opportunities with Crown,” it said.

“The Star will continue to closely monitor the Victorian royal commission and Perth royal commission, with final findings expected later this year.”

Crown issued a statement acknowledging the withdrawal of The Star’s offer, saying it remains committed to maximising value for its shareholders.

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

Crown rejected Blackstone bid in May

The Star, which owns the Sydney casino as well as operations in Queensland, said it had limited engagement with Crown since the proposal was lobbed in May.

Crown Resorts formally rejected an $8.4 billion takeover offer from US private equity outfit Blackstone in May, saying it materially undervalued its operation.

Crown said at the time it was, however, still weighing up a rival merger offer from The Star and had requested more information from its rival about the proposed $12 billion tie-up.

Since then, bombshells from the Victorian royal commission have destroyed any certainty about what sort of Crown operation will emerge from its scrutiny.

Royal commission in Victoria highlights Crown’s flaws

Over eight weeks of public hearings, former Federal Court judge Ray Finkelstein said he found “misconduct or unacceptable behaviour from people high up and low down and in between”.

This includes the revelation on June 7 that since 2012, it may have underpaid up to $272 million in gaming tax to Victoria by counting the cost of freebies doled out to punters such as food, drinks and hotel rooms as “winnings” from its poker machines.

There are also allegations of law breaches with Crown revealing in June that it had sold $160 million of casino chips through its hotel desk and charged them to customers’ credit cards between 2012 and 2016.

Another issue that would significantly impact potential bids for Crown are Crown’s agreements with Victoria, which specify the Melbourne casino should be Victorian-run and operated with the state’s economic and social interests as its principal concern.

It means Crown could also be breaching its agreements with Victoria if its new casino in Sydney or its existing one in Perth took business away from Melbourne.

Goldman Sachs analyst Desmond Tsao said he wasn’t surprised The Star had walked away.

“The withdrawal of The Star’s proposal is unlikely to come as a surprise, given the risk the Victorian royal commission inquiry poses on Crown’s Melbourne asset and the synergy benefits per the indicative proposal, whilst recent share price weakness across the sector also changes the structure and benefits of the initial deal,” he said.

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