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Australia's Star Proposes Crown Acquisition In $7 Bln Play

Australia's Star Proposes Crown Acquisition In $7 Bln Play
An all-stock buyout of larger rival Crown Resorts Ltd was proposed by Australian casino operator Star Entertainment Group on Monday. This offer valued Crown Resorts at A$9 billion ($7 billion) as Star joined the competition of Crown Resorts which also included two private equity giants who are also targeting to acquire the troubled company.
The share-swap takeover approach would create "one of the largest and most attractive integrated resort operators in the Asia Pacific region", Star said.  It was three months ago that Crown was declared unfit for a gambling licence at its new Sydney resort tower.
With this bid for Crown, its shareholders now have three options to choose from following an earlier offer for acquiring it by buyout giant Blackstone Group – which proposed an all-cash indicative bid to A$8.4 billion, and Oaktree Capital Group’s proposal of bankrolling a A$3 billion acquisition of Crown's founder's stake. This move removed a regulatory concern.
The fact that there is intense interest in Crown by acquirers is reflected by Star's approach. The interest is likely for the highly valuable tourism and real estate assets that Crown has in four biggest cities of Australia. However the Covid-19 related border closures and regulatory woes have hit the profits and the share price of the companies.
A sale and leaseback of the combined property portfolio of the two companies that cover dozens of hectares of sought-after waterfront land, would be pursued by Star if the deal goes ahead. Star said that this strategy will generate "significant value" for the company.
Star's proposal "has the synergies, and then the sale-and-leaseback provides the firepower to do buybacks to realise full value for both sets of shareholders," said John Ayoub, portfolio manager of Wilson Asset Management which has shares in both.
In February, an investigation revealed that money laundering on its premises had been allowed by Crown, in addition to the company knowingly dealing with tour operators linked to organised crime as well as not paying attention of the safety of its staff in China who were jailed in 2016 over charges of breaching its gambling ban. The investigation also noted a governance issue in the company related to influencing the company board by Crown’s founder and 37 per cent owner James Packer.
Crown has appointed Steve McCann, the head of property developer Lendlease Group, as the new CEO of the company after its former CEO was forced to resign as a consequence of the investigation, Crown said. It was considering the Star proposal, along with the others, Crown said.
After pulling his representatives from the Crown board, Packer also said he would defer to the company's leadership about its future, after the outcome of the investigation was made public.
Unlike the proposal of Blackstone, the acquisition proposal from Star would not need approval from foreign takeover regulators. However Star’s proposal would likely be subject to antitrust scrutiny as a single gambling behemoth in Australia would be created wihcih will have no competitor.

Christopher J. Mitchell

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