Credit Suisse analysts believe the time is right for Australia’s two market leading casino operators – Crown Resorts and Star Entertainment Group – to consider a merger.
According to The Australian Financial Review, the Australian arm of the global investment bank told investors this week that bringing the two companies together made perfect sense given the challenges each faces fighting the impacts of the COVID-19 pandemic and China’s clampdown on cross-border gambling activity by its citizens.
Such a deal, Credit Suisse said, would see a new merged entity formed of which Crown shareholders could expect to hold around 54.4% and Star shareholders 45.6%. It could also create an opportunity for the entity to buy back some or all of the 36.81% Crown stake currently held by James Packer’s Consolidated Press Holdings, assuming an ongoing suitability inquiry in NSW demands his influence is reduced.
Crown operates two casinos in Australia – Crown Melbourne and Crown Perth – and is due to open its AU$2.2 billion Crown Sydney development on 14 December.
Star is currently the dominant presence in NSW via The Star Sydney and Queensland via The Star Gold Coast and its AU$3.6 billion Queen’s Wharf Brisbane development, due to open in 2022.
Credit Suisse estimates such a merger would realize around AU$1 billion in cost synergies while enabling the new entity to generate EBITDA of US$1.33 billion by FY23, when the recovery from COVID-19 is expected to be complete.
“Revenues and profit are likely to be diminished relative to pre‐COVID levels to FY23 and that, combined with regulatory pressures, may create an opportune environment for a merger between SGR and CWN,” the analysts said.
Any such deal would require regulatory approval across multiple states and may also attract interest from the Australian Competition and Consumer Commission, Credit Suisse noted – particularly given explosive findings around Crown’s culture of compliance during the NSW inquiry.