Star Entertainment backs away from Crown merger bid amidst Royal Commission uncertainty

The Star Entertainment (ASX: SGR) has withdrawn its proposal to create a $12 billion casino and resort giant through a merger with Crown Resorts (ASX: CWN), concluding two Royal Commissions underway would make the deal too much of a gamble.

Star - a relatively smaller company than its rival - was offering an arrangement that would give its shareholders 41 per cent of a combined entity, forecasting "$2 billion in net value from synergies" according to chairman John O'Neill.

In an update today the Brisbane-headquartered company stood by its claims a deal could bring cost synergies of $150-200 million per year with the potential to create significant value from a sale and leaseback of an enlarged portfolio, but ultimately Crown's value is too uncertain in light of ongoing investigations.

"To date, The Star has had limited engagement with Crown on its proposal," The Star wrote in a statement.

"Also, issues raised at Victoria's Royal Commission into Crown Melbourne have the potential to materially impact the value of Crown, including whether it retains the licence to operate its Melbourne casino or the conditions under which its licence is retained.

"We continue to believe substantial benefits could be unlocked by a merger, however the uncertainty surrounding Crown is such that The Star is unable to continue at the present time with its proposal in the form as announced on 10 May 2021."

The Star remains open to exploring potential value-enhancing opportunities with Crown.

"The Star will continue to closely monitor the Victorian Royal Commission and Perth Casino Royal Commission, with final findings expected later this year," the company stated.

"The Star remains focused on its growth initiatives including its world-class multi-billion dollar Queen's Wharf Brisbane integrated resort due to open in late 2022 and its Gold Coast masterplan."