By Patrick Hatch
One of Star Entertainment’s top shareholders says the casino group should jump on board investment giant Blackstone’s $8 billion bid for embattled Crown Resorts, backing a mooted partnership to operate Crown’s three Australian casinos.
Investors and analysts believe the US private equity firm Blackstone made a low-ball opening gambit when it lobbed its $11.85 per share bid on Sunday, with the move potentially designed to coax Star to the negotiating table.
John Ayoub, portfolio manager at major Star shareholder Wilson Asset Management, said he would support Star either joining Blackstone’s bid for Crown or coming on board to operate Crown’s casinos in a joint venture model already used by Blackstone in two Las Vegas casinos.
“In a perfect world you would have Star as the owner and operator of the assets and Blackstone would be the owner and beneficiary of the property assets,” he said.
“From a shareholding perspective you’d love to see it happen. Anything that achieves a Crown-Star tie-up is something that Star shareholders should consider as a positive.”
Analysts have estimated a merger of the $8 billion Crown and the $3.7 billion Star would deliver around $150 million a year in synergies, which Mr Ayoub said translated to about $1.5 billion in shareholder value.
Star owns casinos and hotels in Sydney, Brisbane and the Gold Coast. Crown has casinos in Melbourne and Perth, while its new $2.2 billion Sydney casino has not commenced gaming operations due to the fallout of the damning Bergin Inquiry.
Mr Ayoub said it would be unwise for Star to become involved in Crown until royal commissions into its Victorian and Western Australian licences were completed and the question mark over its NSW licence was removed.
JP Morgan analyst Don Carducci said the timing of Blackstone’s bid appeared “puzzling” unless it was designed to smoke out Star. He estimated Star could earn up to $110 million a year running Crown’s properties on Blackstone’s behalf.
“This provides Star with a significant value-creation opportunity without having to independently bid for Crown,” he said.
Mr Carducci added that the probity approval, which is expected to take at least a year for Blackstone, could also be completed quicker with Star as the operator, given it is already cleared to operate in NSW and Queensland.
One shareholder, who asked not to be named so they could speak freely, said Star could not afford the $8 billion-plus needed to buy its rival outright, and that Crown’s shareholders including 37 per cent owner James Packer would want a cash payout rather than the scrip Star would offer in a merger.
“So what can Star do from here? It’s probably go and try to join with Blackstone,” the shareholder said.
Blackstone owns and operates the Cosmopolitan casino in Las Vegas and owns the properties at the nearby Bellagio and MGM Grand. It leases them both to operator MGM. That is an increasingly common model in the casino industry globally.
Credit Suisse analyst Larry Gandler said Blackstone’s $11.85 a share bid was “opportunistic” given the regulatory overhang and ongoing impact of COVID-19 on Crown’s share price. He estimated the most Blackstone could pay is $13.50 per share, based on its funds’ targeted investment returns, but said it was unlikely other suitors would come to the table.
US casinos were focused on online growth and Asian casinos would struggle to get probity clearance in Australia, he said. The analyst also noted that Mr Packer’s Consolidated Press Holdings, which owns 37 per cent Crown and will be a kingmaker in any deal, agreed to sell 20 per cent of the company to Hong Kong’s Melco Resorts in May 2019 for $13 a share.
“There is little reason to think CPH would expect more than $13 today,” Mr Gandler said.
After jumping 21 per cent on Monday after Crown confirmed Blackstone’s offer, the group’s shares fell 1 per cent on Tuesday to close at $11.85. Star’s share rose 3 per cent on Monday and closed 2.76 per cent lower on Tuesday at $3.88.