Australian casino operator Star Entertainment Group (SGR.AX) on Monday proposed an all-stock buyout of larger rival Crown Resorts Ltd (CWN.AX) that it valued at A$9 billion ($7 billion), vying with two private equity giants for control of the troubled target.
No. 2 casino player Star said it was proposing to give 2.68 of its shares for each share of Crown, and estimated Star shares would be worth A$5 each if the deal went ahead - up from A$3.91 at their last close - implying a A$9 billion sale price.
Just minutes earlier, buyout specialist Blackstone Group (BX.N) upped an all-cash indicative offer to A$8.4 billion, Crown said. Another private equity player, Oaktree Capital Group (OAK_pa.N), has put a proposal to bankroll a A$3 billion buyback of Crown's founder's stake.
Star's move reflects the intense interest in a company with prized tourism and real estate assets on both Australian coasts at a time when its profits and share price have been hit by coronavirus-related border closures and regulatory headaches.
Crown faces the start of one of three state inquiries into its operations later on Monday after another state found it enabled money laundering on its premises, knowingly dealt with tour operators linked to organised crime and disregarded the safety of staff in China who were jailed in 2016 for breaching its gambling ban.
"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," Star chairman John O'Neill said in a statement.
Star would explore a sale and leaseback of some of the combined companies' property portfolio, releasing cash.
Shares of both companies jumped at the start of trading on Monday as investors took a rosy initial view of the benefits of the proposed tie-up. Crown stock jumped 4.5%, hitting its highest intraday level since January 2020, while Star jumped as much as 10% to its highest since February 2020.
Star's intraday peak of A$4.30 would value the deal at A$7.8 billion. The jump in Crown shares gave it a market capitalisation of A$8.8 billion.
The Star proposal "has the synergies, and then the sale-and-leaseback provides the firepower to do buybacks to realise full value for both sets of shareholders," said John Ayoub, portfolio manager of Wilson Asset Management which has shares in both.
Crown, which is 37% owned by its billionaire founder James Packer, said it was assessing the Star approach and the revised Blackstone offer.
A Blackstone representative was not immediately available for comment, while an Oaktree spokesperson declined to comment.
Star has a Sydney waterfront casino near Crown's new resort tower that it opened in December without permission to offer gambling. Star also has casino assets in tourist-popular Queensland state, where Crown does not have a casino.
Star estimated its proposal could generate cost synergies of between A$150 million and A$200 million a year. Any deal would likely need approval from Australia's competition authorities.