By Mike Cherney
SYDNEY--U.S. private-equity giant Blackstone Group Inc.'s move
to acquire Crown Resorts Ltd. and expand its global gambling
footprint has been complicated by a new bidder for Australia's
largest casino operator.
The Star Entertainment Group Ltd., which also operates casinos
in Australia, said Monday that it wants to merge with Crown to
create a gambling giant with casinos across Australia, including in
Melbourne, Sydney and Perth.
Star says its offer values Crown's stock at more than 14
Australian dollars, equivalent to $11, per share. Star is offering
2.68 of its own shares in exchange for every Crown share and a cash
option of A$12.50 per share for up to 25% of Crown's shares on
issue.
Blackstone, which already has real-estate assets in Australia
and a gambling footprint in other countries, such as the
Cosmopolitan casino and resort in Las Vegas, has also increased its
bid, Crown said. Blackstone is now offering A$12.35 per share for
Crown, up from a proposal worth A$11.85 per share, with the
increased bid valuing Crown at roughly $6.5 billion. Blackstone
already owns nearly 10% of Crown, making it the second biggest
shareholder.
A Blackstone representative didn't have an immediate comment on
Star's bid. Crown said its board hasn't yet decided whether the
proposals are in the best interests of the company.
Shares in Crown and Star rose in early trade Monday. Crown was
up more than 7% to A$13.00 and Star rose more than 7% to
A$4.20.
The bidding battle for Crown comes as regulators investigate the
company's business practices and threaten to rescind its casino
licenses, which until Blackstone's bid in March had depressed
Crown's share price, making it more attractive to potential
suitors. Casino stocks in general also took a hit during the
coronavirus pandemic, as local lockdowns forced many to close
temporarily and international travel restrictions made it difficult
for casinos to attract overseas tourists, including lucrative
highrollers.
Crown operates casinos in Melbourne and Perth, but the opening
of a new casino in Sydney has been put on hold after an
investigation found Crown unsuitable to operate the casino without
significant changes. The investigation, set up by the gambling
regulator in New South Wales state, found that Crown disregarded
the welfare of its employees by pursuing highrollers in China,
which ultimately culminated in the arrest of Crown employees
there.
Bank accounts at Crown subsidiaries were used to launder money,
and Crown improperly worked with junket operators in Asia to bring
gamblers to Australia, the investigation also found. The regulator
began looking into Crown after the questionable business dealings
were reported in local media.
Crown previously took steps to address some of the issues raised
by the New South Wales investigation, such as ceasing all ties with
junkets and creating a compliance and financial-crimes department.
Since the investigation concluded, Crown's chief executive and
several board members have exited the company. But officials in
other Australian states have also opened their own investigations
into Crown.
Star's proposal to create one large Australian casino company
would need approval from Australia's competition regulator, though
Star said that it is confident the regulator would sign off on the
deal, without elaborating. Star already operates casinos in Sydney
and Brisbane, Australia's first and third most populous cities,
respectively, and in the Gold Coast, a popular tourist
destination.
Any deal could also be dependent on the support of Australian
billionaire James Packer, who controls a 37% stake in Crown through
his investment company, Consolidated Press Holdings. The New South
Wales investigation criticized Mr. Packer, who previously sat on
Crown's board but no longer does so, for wielding too much control
over the company.
Mr. Packer's company said in a statement in early April that it
is open to considering any suitable transaction for Crown shares.
Later, Crown said it had received a proposal from Oaktree Capital
Management, another U.S. asset manager, to finance a buy back of
the Crown shares held by Mr. Packer's firm.
Star said the merged company would have an equity value of A$12
billion, equivalent to $9.4 billion, assuming the cash option was
taken up. It said a combined casino operator would benefit from
increased scale and diversification, offer an enhanced range of
experiences for domestic and international guests, and could unlock
further value from a potential sale and lease-back of properties.
Star estimated that the combined company could reduce annual costs
by up to A$200 million.
"With a portfolio of world-class properties across four states
in Australia's most attractive and populated catchment areas and
tourism hubs, the combined group would be a compelling investment
proposition and one of the largest and most attractive integrated
resort operators in the Asia Pacific region," Star Chairman John
O'Neill said.
Analysts have long speculated on the possibility of a merger
between Star and Crown, though some have been skeptical. In
February, analysts at Citi said they didn't see financial merit in
a merger, arguing the cost savings are limited and largely driven
by head office consolidation and nongambling procurement.
Crown, which operates a private gambling club in London aside
from its Australian casinos, once had a wider international
footprint and was seeking to expand further. But it pulled back
from its global ambitions after the arrest of its employees in
China in late 2016, and sold off a stake in a Macau casino operator
and pulled out of a Las Vegas casino project.
U.S. firms have previously expressed interest in Crown. In 2019,
Wynn Resorts Ltd. made an indicative takeover offer that then
valued Crown at $7.1 billion, but Wynn called off the discussions
after saying Crown had prematurely disclosed their talks.
Write to Mike Cherney at mike.cherney@wsj.com
(END) Dow Jones Newswires
May 09, 2021 23:38 ET (03:38 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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