Lots of action in Crown Resorts on Monday with a higher offer price from US suitor, Blackstone, a merger proposal from rival casino group, Star, a new CEO and two state royal commissions are about to kick off their hearings into the company’s affairs.
The inquiry in Victoria starts next week and today in Western Australia and follows the explosive NSW inquiry in 2020 that kicked off Crown’s woes as it exposed money laundering and other problems at the casinos in Melbourne and Perth over the past decade.
The new CEO is departing Lendlease boss, Steve McCann who replaces long time CEO, Ken Barton who stepped down in February after being named and shamed in the Bergin inquiry in NSW into Crown’s affairs which found the company unfit to run its new casino at Barangaroo in Sydney because of money laundering and other probity issue at its Melbourne and Perth properties.
Crown chair Helen Coonan told the ASX Monday morning that she would continue as executive chairman until Mr McCann receives the necessary probity approvals to start his role.
“Steve is a first-class appointment for Crown and the right person to embed the ongoing reforms necessary to restore regulatory and public confidence in our operations,” Ms Coonan said in the statement.
Mr McCann was CEO of property giant Lendlease for a decade, and delayed his retirement from the group in 2020 to oversee its response to the COVID-19 pandemic. He steps down on May 31.
“I am looking forward to joining Crown at a crucial time for the organisation and see a real opportunity to help drive significant shareholder value as the company addresses its challenges and emerges from the constraints of the pandemic,” he said in Monday’s statement from Crown.
The appointment comes as rival Australian casino operator The Star Entertainment Group launches a $12 billion merger proposal with Crown after a takeover bid from US private equity group Blackstone and an approach from American outfit Oaktree.
Blackstone revealed an $8 billion bid for Crown in March and raised its offer for the business on the weekend to $12.35 a share from $11.85 a share.
Oaktree Capital offered $3 billion for Mr Packer’s 37% stake in the company last month but wants Crown to finance the buyback.
Star has made an ‘indicative’ (ie not actual and bonding) paper and cash offer.
The exchange ratio is 2.68 Star shares (based on a value of $5 each for the shares) for every one 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,” Crown claimed.
The Indicative Proposal also includes a cash alternative of $12.50 for each Crown share “for up to 25% of Crown’s issued share capital (with any scale back to occur on a pro rata basis).”
To try and keep Crown shareholders interested in the paper and not the cash, Star said that Crown shareholders “that accept the scrip consideration may qualify for capital gains tax rollover relief.”
There are substantial probity checks (which to be fair should be passed because Star and its board and senior managers have already passed them in connection with the company’s casinos in NSW and Queensland).
But Crown has to run the gamut of the two state royal commissions, finalise negotiations with NSW about the casino at Barangaroo and then get shareholder approval.
Before that, it has to get rid of James Packer and his 37% stake in Crown. If that doesn’t happen, there will be no NSW licence and all the bids in the world won’t matter.
The findings of the two state royal commissions won’t be known until later in the year, so any finalisation of the situation at Crown won’t occur until happen until 2022.
And even if all this is cleared up, the ACCC will decide the deal on competition grounds.
These may not be hard to surmount given all the gambling options now available, especially online, as we are seeing in the battle for the wagering business of Tabcorp.
