Revealed: The four bidders circling for Star casino buyout

Interested international parties were circling in recent weeks, with one US player taking a serious look, but a billionaire holds all the cards on the casino’s future.

Star Entertainment had as many as four bidders circling its struggling operations in the past two months, with the most serious a cashed-up Los Angeles-based casino developer who lobbed plans to dramatically upgrade Star’s local offering.

Brent Stevens, the founder and chairman of US casino investor Peninsula Pacific, was in Australia for more than a week last month looking at Star’s Sydney and Queensland properties.

Peninsula’s bankers undertook due diligence, lasting between six and eight weeks. But, talks ended shortly after Stevens raised concerns about Star’s high cost base compared to global rivals.

The takeover talks, which have largely gone cold, came at a critical time for Star.

The recommendations from the bruising inquiry into Star’s suitability to hold a gaming licence in NSW are due to be presented to the state’s powerful casino commissioner Philip Crawford early next week. The report is expected to determine the long-term future of Star, which this year has seen another wave of senior management and boardroom exits.

The report by Adam Bell QC, while highly critical, is expected to stop short of recommending Star be stripped of its casino licence in NSW. However, it is widely expected to call for an extension of the tenure of the special manager overseeing the business.

Any prospective buyers would need to win over state-based casino regulators. The regulatory response could reignite bidding tension for the casino.

Uncertainty around the regulatory outlook and a collapse in gaming business from international high rollers has seen Star’s shares fall sharply. The casino player is capitalised at about $1.5bn, a steep discount to the $2.5bn of net assets it has.

The Barrenjoey-advised Star in May confirmed it had received interest “from a number of external parties regarding potential transactions” but did not reveal specifics and has declined to discuss the process further.

A Star spokeswoman declined to say whether the process was continuing.

New chief executive Steve McCann, the former Crown Resorts and Lendlease boss, has vowed to regain Star’s licence and boost non-gaming sources of revenue, such as entertainment and hospitality.

McCann, who was CEO of Crown until it was acquired by Wall Street major Blackstone in 2022, recently said he would only consider real bids, but would not allow Star to be distracted by M&A.

Others taking a look at Star in recent weeks include the US-owner of the Darwin casino, which is now called Mindil Beach Casino & Resort. The privately owned New York-based hospitality giant Delaware North decided to walk after crunching the numbers.

Also eyeing a potential buyout are Star’s joint venture partners on the $3bn Queen’s Wharf Brisbane development, led by the Hong Kong-based Chow Tai Fook Enterprises. This approach involved a carve-up option which would have seen the Sydney property sold off.

It has been previously reported the local partner of the US-based Hard Rock Cafe, led by Gold Coast identity Patrick Farrugia, was interested. The US-listed Hard Rock Inc quickly distanced itself from any talks led by Mr Farrugia, raising questions over financing for a deal. In May, when Mr Farrugia emerged as a potential buyer, Star’s shares jumped more than 20 per cent. However, the shares have since pulled back as takeover talk subsided.

Joint venture?

The Australian earlier this month revealed former top Star executives and directors had been preparing for exploratory merger talks with rival Crown Resorts, now owned by giant Wall Street asset manager Blackstone.

Those talks were suddenly cancelled and have since gone cold as the NSW casino regulator announced a new inquiry into Star’s suitability to hold a gaming licence in February.

Star was open to operating a joint venture structure for the Sydney casinos which include Star’s Pyrmont facility and Crown’s Barangaroo site, but Blackstone was pushing for control of all of Star’s properties. Blackstone declined to comment.

Meanwhile Star’s biggest shareholder — pokies billionaire Bruce Mathieson, who has a stake of almost 10 per cent — is believed to be pushing for a break-up where he emerges with the Gold Coast property.

He has an informal alliance with fund managers Perpetual and Wilson Asset Management, which combined with Mathieson control a little over 20 per cent of Star.

The three will be a key hurdle for any prospective bidders.

Mathieson is understood to be pushing for a seat in the Star boardroom. The billionaire, who has a 15 per cent stake in drinks and pubs group Endeavour, has probity approval to lift his stake in Star to 20 per cent. If he exercises this right, the trio could emerge with 30 per cent.

Among the potential bidders, Peninsula was the most serious, even putting forward the name of a local boss. It is known for operating and turning around a string of casinos across the US Midwest and New York state.

Peninsula sold a portfolio of properties two years ago to Kentucky-based gaming major Churchill Downs for more than $US2.8bn ($4.3bn). Another portfolio of regional casinos was offloaded a decade ago for $1.5bn. Currently, Peninsula controls casinos in Kansas and New Hampshire.

While Star’s balance sheet is in sound shape, two big financial events are looming which could again bring it close to breaching covenants on its debt and needing to raise funds.

The first is the looming settlement in the civil legal action launched by financial crimes regulator Austrac around the casino’s alleged involvement in suspicious transactions worth hundreds of millions of dollars.

Austrac last year fined Crown $450m over a string of anti-money laundering breaches. Star has set aside $150m to cover a potential fine, suggesting a final figure could be as much as $300m.

The other looming financial event is a $1.6bn project-level debt refinancing linked to its Queens Wharf development due late next year. The loan has been largely drawn down. It was locked in at ultra-cheap rates during the Covid pandemic.

There are also four shareholder class actions afoot relating to its share price collapse. While Star is defending the cases, there is a risk of a large payout if the operator opts to settle.

Looks good to me..... lets hope nothing comes in from left field.