Somewhat out of the blue, the Star Entertainment Group has submitted a conditional, non-binding, indicative proposal to merge with Crown Resorts at a nil-premium share exchange ratio of 2.68 The Star shares per Crown share.
Based on recent trading values of The Star and the substantial value that would be unlocked by a merger, The Star estimates its pro forma share price to be more than $5 per share implying potential value of the Scrip Consideration in excess of $14 per Crown share. The Indicative Proposal also includes a cash alternative of $12.50 per Crown share for up to 25 per cent of Crown’s issued share capital.
The move immediately drew attention from The Australian Competition and Consumer Commission (ACCC). Chairman Rod Sims said: “We will do a detailed investigation. It will be a public review. It’s very early days. But we would look at the market for domestic table game customers,” he said. “We would look at the competition between Barangaroo and Star in Sydney. We would also look at the extent to which there is intercity competition for customers.”
The Star believes that a merger with Crown represents a compelling value proposition for all shareholders for the following reasons. A merger represents a highly accretive transaction for both The Star and Crown shareholders. It would create a national tourism and entertainment leader with a world-class portfolio of
integrated resorts with enhanced scale and geographic earnings diversification, significant balance sheet strength and free cashflow generation to accelerate debt repayment, support attractive fully franked dividends and pursue continued investment.
The Star said: “For some time, The Star and Crown have shared complementary visions to build world-class gaming and entertainment offerings across Australia and the AsiaPacific region. The Merger would advance that vision in the interests of our respective shareholders by creating a national tourism and entertainment leader
with a larger, more diversified portfolio of integrated resorts with leading strategic positions in key Australian markets. The combination of our highly complementary businesses would support an enhanced range of products and experiences for domestic and international guests across our integrated resorts.
“The Merger would allow us to build a stronger, more capable and highly committed team by broadening our employee talent pools, adding management depth and facilitating ‘best-of-breed’ capabilities and culture across a number of key operational and customer service areas. It would create a larger capital base and a more diverse earnings profile that is less exposed to any single property or region, while at the same time driving enhanced growth prospects.”
It is expected to deliver between $150m to $200m of cost synergies per annum with an estimated net value of $2bn. It could unlock significant value from a sale and leaseback of the enlarged property portfolio (or via a similar structure and subject to the receipt of necessary regulatory consents). It would support an enhanced range of products and experiences for domestic and international guests across the portfolio of integrated resorts; and it would provide access to exciting growth opportunities only available through the merger across marketing and events, digital and technology initiatives, investment in online capabilities and optimisation of a combined loyalty program to deliver enhanced value for members.
The Star’s Chairman, Mr John O’Neill AO, said that bringing together The Star and Crown would create an estimated $12bn ASX-listed national tourism and entertainment leader.
“A merger of The Star and Crown would result in significant scale and diversification and unlock an estimated $2bn in net value from synergies. 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.”
The operator added: “The Star looks forward to working with Crown to develop the Indicative Proposal, noting it believes it can complete its necessary due diligence and agree binding merger and definitive debt financing documentation over the course of the next eight to twelve weeks. We would seek to engage with a range of investors on a potential sale and leaseback (or similar structure) of the enlarged property portfolio during diligence. Given its existing relationships with governments and regulators and its proven track record of governance and compliance, The Star is confident it is well positioned to obtain the necessary regulatory approvals for the merger. The Star has existing, long held casino operator licences in New South Wales and Queensland.”