Star (ASX:SGR) and Crown (ASX:CWN) shares on watch amid $12bn merger proposal

Crown Resorts Ltd (ASX:CWN) and Star Entertainment Group Ltd (ASX:SGR) shares will be on watch after the latter proposed a $12bn merger…

| More on:
Star Entertainment share price Rising ASX share price represented by casino players throwing chips in the air

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

All eyes will be on the Crown Resorts Ltd (ASX: CWN) share price and the Star Entertainment Group Ltd (ASX: SGR) share price on Monday morning.

This follows confirmation that the latter is proposing a $12 billion merger to create a gambling and hospitality giant.

What was announced?

This morning Star Entertainment confirmed that it has submitted a conditional, non-binding, indicative proposal to merge with Crown at a nil-premium share exchange ratio of 2.68 Star shares per Crown share.

Based on recent trading values of Star and the substantial value that would be unlocked by a merger, the company estimates that its pro forma share price is more than $5.00 per share. This implies potential value of the scrip consideration in excess of $14.00 per Crown share.

This is a 15.5% premium to the current Crown share price of $12.12.

In addition to this, Star's indicative proposal includes a cash alternative of $12.50 per Crown share for up to 25% of its issued share capital.

Why merge?

Star revealed that it believes that a merger with Crown represents a compelling value proposition for all shareholders for a number of reasons.

One of those is that it represents a highly accretive transaction for both Star and Crown shareholders. Management notes that it would create a national tourism and entertainment leader with a world-class portfolio of integrated resorts.

It would also have enhanced scale and geographic earnings diversification, significant balance sheet strength, and free cashflow generation to accelerate debt repayment, support attractive fully franked dividends and pursue continued investment.

Star estimates that the merger could deliver between $150 million to $200 million of cost synergies per annum with an estimated net value of $2 billion. Furthermore, it could unlock significant value from a sale and leaseback of the enlarged property portfolio.

Finally, it believes it would provide access to exciting growth opportunities only available through the merger across marketing and events, digital and technology initiatives, investment in online capabilities and optimisation of a combined loyalty program to deliver enhanced value for members.

"A compelling investment proposition"

Star's Chairman, John O'Neill AO, said: "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. 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."

The Crown Board has responded to the news, advising that it has not yet formed a view on the merits of the merger proposal.

It will now commence a process to assess the proposal, having regard to the value and terms of the proposal and other considerations. It will also engage with relevant stakeholders including regulatory authorities.

Takeover offer increased

That won't be the only thing the Crown Board has to consider.

This morning it revealed that Blackstone has increased its takeover offer to $12.35 cash per share. This represents an increase of $0.50 cash per share (or 4%) compared to the previous indicative offer price of $11.85 cash per share.

Once again, the indicative offer price will be reduced by the value of any dividends or distributions declared or paid by Crown.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Mergers & Acquisitions

Contented looking man leans back in his chair at his desk and smiles.
Mergers & Acquisitions

Guess which ASX 300 stock is jumping 7% on merger news

This struggling company could be close to merging with a rival.

Read more »

Man with rocket wings which have flames coming out of them.
Mergers & Acquisitions

Guess which ASX stock is up 50% on takeover offer

A takeover offer is getting investors excited this morning. Let's dig deeper into things.

Read more »

An oil worker in front of a pumpjack using a tablet PC.
Energy Shares

Santos shares rocket on $30b takeover offer

This energy giant could be going private after receiving a takeover approach.

Read more »

a woman drawing image on wall of big fish about to eat a small fish
Mergers & Acquisitions

Guess which ASX 300 share just received a takeover offer

This share is jumping today after receiving a takeover offer.

Read more »

A man sits in a chair hunched over a laptop and covered head to toe in frozen icicles to represent Envirosuite's trading halt
Mergers & Acquisitions

Johns Lyng Group shares enter trading halt. Is it a takeover target?

This ASX 200 stock looks ripe for a takeover.

Read more »

Group of people in a gym high five each other surrounded by gym equipment.
Mergers & Acquisitions

This ASX tech stock is hitting a record high on acquisition news

The market is responding positively to this news. Let's dig deeper into it.

Read more »

Two people shaking hands in the boardroom on a merger.
Mergers & Acquisitions

What did Macquarie make of the Brickworks and Soul Patts merger?

Macquarie sees simplification, scale, and upside… but it also has a warning..

Read more »

A cool young man walking in a laneway holding a takeaway coffee in one hand and his phone in the other reacts with surprise as he reads the latest news on his mobile phone
Mergers & Acquisitions

PointsBet share price surges 11% on improved takeover offer

The bidding war for PointsBet shares continues apace today.

Read more »