Star Entertainment proposes $12 billion merger with Crown Resorts as casino group appoints new CEO

Star Entertainment proposes $12 billion merger with Crown Resorts as casino group appoints new CEO

Crown Resorts (ASX: CWN) may be beset by controversy with two Royal Commisions to its name right now, but that hasn't stopped its smaller rival The Star Entertainment Group (ASX: SGR) throwing its chips on the table to form one company.

The announcement comes on the same day Crown has announced current LendLease (ASX: LLC) CEO Steve McCann will be its new CEO from June, filling the void left by the departure of Ken Barton following the Bergin report scandal that has plagued its proposed Barangaroo casino in the heart of Sydney.

The bid also comes as US group Oaktree Capital Management seeks to acquire James Packer's shareholding in Crown for $3 billion, while existing minority shareholder Blackstone has lifted its takeover bid to $12.35 per share, representing a $300 million increase to $8.3 billion.

Star Entertainment has offered 2.68 of its own shares for every Crown share, and a cash alternative of $12.50 per Crown share for up to 25 per cent of the company's issued capital.

In its proposal, Star estimates the merger would result in indicative cost synergies of between $150 million and $200 million per annum.

The suitor's chairman John O'Neill says bringing together The Star and Crown would create an estimated $12 billion ASX-listed national tourism and entertainment leader.

"A merger of The Star and Crown would result in significant scale and diversification and unlock an estimated $2 billion in net value from synergies," he says.

"With a portfolio of world-class properties across four States in Australia's most attractive and populated catchment areas and tourism hubs, the combined group would be a compelling investment proposition and one of the largest and most attractive integrated resort operators in the Asia Pacific region."

If the cash alternative is fully taken up, the merger proposal would result in pro forma ownership of the merged entity of 59 per cent for Crown shareholders and 41 per cent for Star shareholders.

Star's board believe their company's pro forma share price should be more than 25 per cent higher than it is currently, implying a scrip valuation of $14 per CWN share which would mean close to a $9.5 billion valuation from the proposal.

The Crown board is yet to form a view on the proposal, and if they agree the deal would still be subject to shareholder approval, approval from state-based casino regulators and clearance from the Australian Competition and Consumer Commission (ACCC).

The news coincides with Crown appointing new leadership with Steve McCann, who was originally planning to retire from real estate and investment group Lendlease but had delayed his exit in order to respond to the COVID-19 pandemic.

McCann will retire from the LendLease board on 31 May and start with Crown the following day as both CEO and managing director, subject to all probity and regulatory approvals.

To ensure a seamless transition, Helen Coonan will continue to perform her executive responsibilities as interim executive chairman until McCann has received necessary approvals to perform in his role as chief executive officer and managing director.

"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," says Coonan.

"Recognised as one of Australia's most respected business leaders, Steve has a unique blend of strategic, financial and corporate governance expertise and a track record of building strong employee engagement and driving cultural change.

"The Board was looking for a CEO firmly committed to building on the momentum for change within our business and Steve is ideally placed to hit the ground running as our sweeping reform program takes hold.

McCann says he looks forward to joining Crown at a "crucial" time for the organisation, where he sees real opportunity to help drive significant shareholder value as the company addresses its challenges and emerges from the constraints of the pandemic.

Correction. An earlier version of this story contained the previous takeover offer from Blackstone, but has since been updated.

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