Star’s plan is more complicated than the one pitched by the private equity firm. It’s a nil-premium all-stock entreaty, with an option to buy up to 25% of Crown shares in cash at A$12.50 apiece. Star reckons cost savings add up to another $1.6 billion. Some 59% of that benefit would accrue to Crown owners under the hybrid cash-and-stock structure. Blackstone on the same day hiked its conditional offer about 4% to A$12.35 a share.
Merging Star and Crown holds some appeal. Although the suitor targets a lower end of the market, it knows the industry and regulators well. With a bigger balance sheet at its disposal, it might be better placed to court high rollers from overseas. The plan is ambitious, however. For one, Star is flattering the present value of about A$175 million of envisaged annual cost savings by capitalising it aggressively on a blended 18 times price-to-earnings multiple of the two companies. Antitrust authorities say they will scrutinise a combination of the two big rivals. And a mooted sale-and-leaseback strategy, where Star would sell off properties and rent them back again, could be tricky to implement in the gambling business.
There is also the sticky question of James Packer, Crown’s founder and 37% owner. Star’s capped cash component limits its debt burden but implies he would continue to be a shareholder. Although he has been sidelined by regulators, it creates an awkward situation. Star shares increased 7%, suggesting shareholders see some merits. Crown’s vaulted to A$13. Blackstone offers more certainty with its all-cash takeover, but also is awaiting approval from gaming authorities that it would be a suitable owner. Like Crown shareholders, it will have to have recalculate the probabilities of being third-time lucky.
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