The Star lobs merger offer at rival Crown to create $12bn tourism and entertainment giant

Melbourne, Australia - December 20, 2016: Groups of visitors passing through a entrance to the Crown Melbourne integrated resort in Southbank at dusk.

The Star Entertainment Group Limited has submitted a conditional, non-binding, indicative proposal to merge with beleaguered rival Crown Resorts.

The proposal is for a nil-premium share exchange ratio of 2.68 Star shares per Crown share, and also includes a cash alternative of $12.50 per Crown share for up to 25 per cent of the company’s issued share capital, with any scale back to occur on a pro rata basis.

Assuming the cash alternative is fully taken up, the merger proposal would result in pro forma ownership of the merged entity of 59 per cent for Crown shareholders and 41 per cent for Star shareholders.

The board of the merged entity would initially comprise the current directors of both Crown and The Star.

In the letter detailing the proposal, The Star said it estimates that a merger with Crown would result in cost synergies of between $150 million and $200 million per annum.

The Star also indicated the potential to unlock “significant value” from a sale and leaseback of the merged entity’s property portfolio.

The merger proposal is subject to various conditions, including the execution of definitive merger documentation, Crown shareholder approval of the proposed scheme of arrangement, Star shareholder approval by way of an ordinary resolution, approval from the relevant state-based casino regulators of Crown and Star, clearance from the Australian Competition & Consumer Commission and approval from other relevant regulators.

The Star’s chairman, John O’Neill, said bringing together the two rivals would create an estimated $12 billion 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 $2 billion in net value from synergies,” he said.

“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.”

Image source: iStock/robb1037

A statement issued by the Crown board said it has “not yet formed a view on the merits of the merger proposal”.

“It will now commence a process to assess the merger proposal, having regard to the value and terms of the proposal and other considerations. It will also engage with relevant stakeholders including regulatory authorities.

“Crown shareholders do not need to take any action in relation to the merger proposal at this stage. There is no certainty that the merger proposal will result in a transaction.”

The Star faces some competition, however, from private equity firm Blackstone, which has just submitted a revised proposal to acquire Crown by way of a scheme of arrangement at an indicative price of $12.35 cash per share.

Blackstone’s revised proposal represents an increase of $0.50 cash per share (or four per cent) compared to the previous indicative offer price of $11.85 cash per share, and will be reduced by the value of any dividends or distributions declared or paid by Crown.

Other than the increase in the indicative offer price, the key terms of Blackstone’s revised proposal remain the same as those in the original one.

Crown said it not yet formed a view on the merits of either proposal from The Star and Blackstone, and that it will now commence processes to assess each offer.

In more major news for Crown, the company has appointed Steve McCann as its new CEO and managing director, following the controversial exit of Kim Barton in February.

McCann is currently group CEO of real estate and investment group Lendlease, a role he has held for more than a decade. Before joining Lendlease in 2005, McCann worked in senior leadership roles at ABN AMRO and Bankers Trust.

McCann delayed his planned retirement from Lendlease last year to lead the group’s response to the COVID-19 pandemic, and will retire from the board at the end of the month.

He will join Crown on 1 June 2021 and will assume the role of CEO and managing director upon receipt of all probity and regulatory approvals.

To ensure a seamless transition, Crown said Helen Coonan will continue to perform her executive responsibilities as interim executive chairman until McCann has received the necessary approvals to perform in his role.

Featured image source: iStock/Kokkai Ng

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