The Star backs out of offer

Australian casino company The Star Entertainment Group Ltd has withdrawn its proposal for a merger with billionaire James Packer’s Crown Resorts.

The firm put forward a non-binding nil-premium offer of 2.68 of its shares for each Crown share in May. At the time, The Star implied the potential value of the deal would be around AU$14 (US$10.32) per Crown share. However, the operator announced in a statement Friday that it has withdrawn the offer.

potential to materially impact the value of Crown.”

In its reasoning for the decision, The Star said it has had “limited engagement” with Crown regarding the proposal. The company also pointed to an ongoing investigation into Crown by Victoria’s Royal Commission, placing Crown Melbourne’s casino license in jeopardy. The Star said this inquiry has “the potential to materially impact the value of Crown.”

Instead of a Crown merger, The Star has confirmed that it will focus on “growth initiatives,” which includes the development of its multi-billion dollar Queen’s Wharf Brisbane integrated resort slated to open in late 2022. The company said it is still willing to explore “potential value enhancing opportunities” with Crown.

Trouble in Melbourne

In its statement this week, The Star cited Crown’s issues in Victoria as one of the main reasons behind its decision. For Crown, trouble first began earlier this year when a New South Wales inquiry deemed the operator unfit to hold a Sydney casino license. As a result, the company is prohibited from opening the gaming floor in its new AU$2.2bn (US$1.62bn) Barangaroo development.

Following this judgement, a royal commission in Victoria began investigating the company to assess its suitability to hold a casino license for Crown Melbourne. The inquiry has so far heard evidence of responsible gambling and anti-money laundering failings at the casino. Earlier this month, allegations arose surrounding a fugitive fraudster who supposedly laundered millions of dollars through Crown Melbourne.

Earlier this week, the lawyer running the Victoria inquiry recommended that Crown Resorts lose its casino license in Melbourne. Speaking on Tuesday, Adrian Finanzio said: “The corporate rebirthing that Crown says is underway is insufficient and so uncertain as to lead this commission to the conclusion that there is a sufficiently clear pathway to suitability.”

Crown said it would “carefully” review the remarks of Finanzio before providing its closing submission to the inquiry on August 3.

Other bids still on the table

Although Crown’s Victoria troubles may have prompted The Star to withdraw its merger offer, the casino operator still has plenty of options left.

values Crown at around AU$8.36bn (US$6.17bn)

Blackstone Group Inc was the first company to make a bid for Crown this year. The private equity firm, which already owns a 9.99% stake in the casino operator, upped its takeover bid from AU$11.85 (US$8.74) per share to AU$12.35 (US$9.1) in May. The new cash offer values Crown at around AU$8.36bn (US$6.17bn).

More recently, private equity firm Oaktree Capital Management offered to help Crown Resorts buy back its shares from founder and current major shareholder James Packer. The proposed deal would see Oaktree buy back up to AU$3bn (US$2.21bn) worth of Crown shares.