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Rumours grow of possible Crown-Star merger

Fri, Jul 14, 10:59am by Staff Writer

The shakeup of Australia’s casino industry in the wake of Crown’s China disaster has rumours growing of a possible merger between Australia’s two biggest casino companies.

While the legal ramifications surrounding the arrest and conviction of 16 Crown Resorts staff is coming to an end, the overall impact on the Chinese VIP market is yet to be measured.

There are suggestions that a recent $500 million share buyback by Crown is meant to insulate them from the possible effects of a poorer than expected financial result as a result of a slump in Chinese VIP revenue.

James Packer has lifted his personal stake in the company to 49.7%, on the precipice of majority ownership.

The manoeuvring has raised suggestions from industry insiders that Crown and Star, who between them control the major casinos in Melbourne, Perth and Sydney, and are building further casinos in Brisbane and Sydney, could consider a mega-merger.

Citi Group issued a note this week suggesting any merger between the two companies would be an overwhelming positive for both companies.

The note said a Crown purchase of The Star at $6.45 per share would result in a considerable growth for Crown in the medium term with growth in operational scale and market scale, as well as synergies.

The greatest synergy a combined entity would realise would be to bring together the customer loyalty programs from both brands under one banner.

While Crown is constructing a second casino in Sydney to rival The Star, the CitiGroup note said Crown’s new Barangaroo-based casino would offer a substantial point of difference with a VIP focus which would complement, rather than compete with The Star.

Citi analyst Rohan Sundram told The Australian that while a merger was “merely speculation”, he believed that strategic merit to such a tie up existed.

“Through its expanded scale across Australia, we estimate that a combined Crown and Star would increase its share to around 86 per cent of domestic mass market revenue and 90 per cent of VIP revenue amongst the major casino operators,” Sundram said.

“We believe the combined group could potentially offer more compelling loyalty reward offerings to customers across their various properties nationally.”

The Star Entertainment Group (SGR) has jumped from at $4.98 to $5.23 since Wednesday evening, while Crown Resorts (CWN) is $12.30 up to $12.55.

The Star’s price rose after Perpetual is believed to be the main buyer of a $233 million stake in the company.

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