The Star Scraps Crown Merger Proposal amid Royal Commissions into Casino Operations

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Australian casino operator The Star Entertainment Group withdrew on Friday its $9 billion (A$12 billion) proposal to merge with rival Crown Resorts as the latter company is facing uncertain future amid allegations of tax evasion and poor anti-money laundering controls.

The Star said in an ASX filing that while it continues to believe “substantial benefits could be unlocked by a merger”, the uncertainty surrounding its fellow Aussie casino operator is such that “The Star is unable to continue at the present time with its proposal.”

The company tabled its proposal for a tie-up back in May. The offer was conditional and non-binding and outlined significant strategic and value accretion benefits for both companies’ shareholders. The Star projected a marriage with Crown could have generated cost synergies of between A$150 million to A$200 million a year and could have created significant value from a sale and leaseback of the property portfolio of the combined group.

The Star scrapped its proposal shortly after lawyers for the ongoing Victoria Royal Commission into the activities of Crown’s flagship casino resort in Melbourne stated that the operator wasn’t fit to run the property and keep its gaming license from local regulators.

If the above finding is included in the Royal Commission’s final report in October, it would further cripple Crown which has already been ruled unfit to operate a casino at its newly launched property in Sydney. In addition to the company’s troubles, a Royal Commission in Western Australia is probing its Perth facility.

Royal Commission Could Materially Impact Crown’s Value

The Star said Friday that it has had limited engagement with Crown in relation to its merger proposal. The company also noted that the issues raised by the two ongoing Royal Commissions “have the potential to materially impact the value of Crown including whether it retains its licenses and whether conditions are placed on its licenses.

The Star is not the only company that has expressed interest in Crown’s operations, despite its issues. Earlier this year, US buyout firm The Blackstone Group tabled a A$8.4 billion offer, which Crown rejected in May as too law.

Separately, global investment firm Oaktree Capital Management offered in April to lend A$3.1 billion to fund a buyback of the 36% stake that Crown’s former boss, James Packer, currently owns.

An 18-month probe led by former NSW Supreme Court Judge Patricia Bergin found that Crown had facilitated money laundering at its Perth and Melbourne casinos, collaborated with members of Asian organized crime, and failed to protect 19 China-based staff members from being arrested in the fall of 2016 for illegally promoting gambling in the mainland.

The inquiry further found that Mr. Packer had “deleterious” influence on the company and its governance.


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