As regulators defer decisions on suspending its casino licences while financial woes and leadership gaps hinder its progress on remediating numerous operational problems, The Star Entertainment Group (ASX: SGR) has received a lifeline from a US suitor that believes its fortunes can be turned around.
This evening the Australian gambling and resorts group confirmed it had entered into a binding term sheet worth $300 million with Rhode Island multinational Bally's Corporation, which claims to have "improved more than 20 individual property acquisitions over 15 years in a variety of challenging circumstances".
Bally's is offering a $300 million multi-tranche convertible note to The Star to secure 56.7 per cent of issued capital, including $100 million that is expected to be paid on or before this Wednesday, 9 April.
The remaining $200 million will be subject to shareholder approvals and regulatory green lights from Queensland, New South Wales, the Foreign Investment Review Board (FIRB), and the Australian Securities Exchange (ASX), as well as continued compliance with its existing senior lender facility.
The suitor has also raised the possibility of pubs baron Bruce Mathieson's Investment Holdings Pty Ltd joining the investment for a possible subscription of up to $100 million, in which case Bally's capital injection would be reduced to $200 million.
"This transaction provides Bally's the opportunity to infuse The Star with what it needs to regain its position as Australia's preeminent gaming destination," says Bally's chairman Soo Kim.
"And it allows The Star shareholders to share in what we confidently believe will be a brighter future together."
Bally's president George Papanier adds the group is excited to bring its reputation and operating expertise to a "wonderful set of properties that operate in fantastic markets".
"We are up for the challenge," he says.
This evening's news comes less than a week after Australian private equity firm Salter Brothers Capital withdrew a $940 million refinancing plan that would have wiped out all The Star's existing debts.
At the time the company hinted it was still negotiating with Bally's, but also admitted there was a "material uncertainty" as to its ability to continue as a going concern.
The Star's board intends to unanimously recommend shareholders vote in favour of the transaction, in the absence of a superior proposal and subject to an independent expert concluding it is in the best interests of shareholders.
The company aims to send a booklet to shareholders in late May with a view to holding a vote in late June. Directors have also expressed their intentions to lodge accounts for the December half with the ASX "as soon as possible".
Today's announcement comes just more than a month after The Star revealed its discussions with Bally's, which was looking to invest at least $250 million to secure a majority of shares.
The US suitor noted that at the end of December it had US$171 million of cash on hand and no amounts drawn, other than letters of credit, on a US$620 million revolving credit facility.
"In short, we have ample unrestricted liquidity to complete this transaction expeditiously,” the company stated at the time, emphasising its intention to return The Star to “profitability and sustainability”.
“Importantly, our proposal delivers more than capital: Bally’s would partner with Star in deploying our significant operating experience in turning around casino assets and growing highly successful casino businesses globally.
It also came to light that Bally's had completed "substantial due diligence" at that point based on publicly available information, and had undertaken "mystery shopper" tours of The Star's properties in Sydney, Brisbane and the Gold Coast.
"We’ve seen reports of interest in individual properties, but I’m not sure breaking them up would work. Some would flourish, but others might not. Keeping them together may actually ensure they all continue operating as casinos. That’s just an observation we had," Bally's Corporation chairman Soo Kim told the publication Inside Asia Gaming.
"The Star Sydney property has good bones, but it's clear why it has been underperforming," Kim was quoted as saying.
"The Gold Coast property is older but remains the only one of its kind in that area, so there’s potential. The Brisbane property, with the Queen’s Wharf development, is a huge step up from what was the Treasury building."
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