Packer’s get out of jail card could also be his worst nightmare

James Packer is faced with the ultimate conundrum.

He wants out of his Crown casino empire, but the proposal that will deliver the billionaire the exit strategy he so desperately wants comes from the rival casino group that has been Packer’s traditional nemesis.

The bad blood between the two Australian casino groups is legendary. The brutal battle between the two groups in 2013 resulted in a win for Packer with Crown gaining the right to build a casino in Sydney and deprive Star of its NSW monopoly.

The bad blood between James Packer and The Star is legendary.Credit:AAP

But the once-wounded Star has watched Crown implode since 2016 when 18 of its staff were arrested in China and it sat on the sidelines as Crown’s involvement in money laundering and its relationship with junket operators involved in organised crime were unravelled during the NSW gaming regulator’s inquiry. That inquiry, led by Commissioner Patricia Bergin, found Crown was unsuitable to hold a casino licence in NSW.

As a result Crown has become vulnerable and its major shareholder Packer has been itching for a commercial divorce.

After months of deliberation Star has now made its move. It isn’t the only vulture looking to move on Crown but it does have a compelling story.

Star’s proposed merger, to be announced on Monday morning, comes on the heels of Crown’s 10 per cent shareholder Blackstone, upping its current $11.85 per share offer to what is sure to be more than $12 per share.

It’s payback time. The Star looks to merge with Crown.Credit:Louise Kennerley

In what can only be described as a commercial game of thrones, the bidding war between Star and Blackstone also pits these former allies against each other. Up until a few months ago the two parties had been working together to stitch up a deal to buy Crown. After months of discussions Blackstone defected from the camp and went alone. It left Star out in the cold.

The Star offer is believed to be characterised as a nil premium merger with a scrip and cash element.

The precise details of Star’s proposal are not known, however, the cash element of the deal will almost certainly come in above the $12 mark – given Crown’s shares were trading at $12.12 on Friday.

Blackstone’s $11.85 offer had received a lukewarm reception from the Crown board that had not offered the private equity group entry into the data room to take a closer look at the company’s financials.

The deal will not deliver Packer a complete exit. If he takes the maximum amount he is capable of receiving in cash and the remainder in shares, he will wind up with a stake in the merged casino group of between 10 and 20 per cent – compared with the 37 per cent stake he currently holds in Crown.

The Star proposal may be compelling – depending on the terms of the offer the Crown board received over the weekend.

It will certainly be neat. In the first instance it will overcome many of the regulatory hurdles that currently dog Crown. It would provide Crown with a ready-made management and some board members – all of whom have received probity.

But from an investor’s point of view a merger with Star will offer sufficient synergies that Star will be able to make the claim that its offer will be worth $14 or more to current Crown shareholders.

Shareholders will need to take on faith that these synergies can be achieved – that a merged group can take out $150 million to $200 million in costs with a national casino footprint of properties in Sydney, Melbourne, Perth, the Gold Coast and Brisbane.

In theory a merged company of this size would be catapulted into the ASX 50.

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