(Bloomberg) -- Crown Resorts Ltd., facing a potential shutdown of its entire Australian casino empire, lost a lifeline on Friday after its closest rival withdrew a A$12 billion ($9 billion) merger proposal.
Star Entertainment Group Ltd. scrapped its planned union after allegations of tax evasion and weak money-laundering controls at Crown, aired at a public inquiry, put the future of its competitor's flagship Melbourne casino in doubt. Lawyers for the probe this week argued that Crown isn't fit to run the facility, or even keep its gaming license.
Such a finding in the inquiry's final report in October risks crippling a company that's already been forced to close its brand new Sydney casino. With a separate investigation assessing Crown's Perth facility, the future of the whole group and its billionaire shareholder James Packer hangs in the balance.
Star, best known for its Sydney casino, had in May proposed an all-stock merger with Crown to create an Australian gaming and hospitality giant with a market value of A$12 billion ($9 billion).
Underscoring the damage from the Melbourne inquiry, Star said Friday that the loss of Crown's license in the city, or any conditions tied to its continued operation, could materially impact Crown's value.
“Substantial benefits could be unlocked by a merger, however the uncertainty surrounding Crown is such that Star is unable to continue at the present time with its proposal,” the company said.
Star's decision to walkaway from Crown -- for now, at least -- is the latest blow for a company that's been hammered by scandal and mismanagement.
Crown's regulator in New South Wales state in February said the company was unfit to run gaming operations at its new A$2.2 billion Sydney resort after facilitating money laundering at its other properties for years. That verdict led to an exodus of the management and directors who'd been tarnished by the watchdog's report.
| To read more on Crown: |
|---|
| Crown Isn't Fit to Hold Melbourne Casino License, Probe Told |
| Blackstone's $6.5 Billion Crown Resorts Bid Rejected as Too Low |
| Packer's Casino Dream Dashed as Crown Seen Unfit for License |
Crown shares fell as much as 4.4% in early Sydney trading Friday, before trading down 1.8% at 12:50 p.m. The stock has slumped about 24% from its recent peak in May. Star shares were up 0.4%.
Packer, who has stepped back from public life to fight a mental health battle, is running out of options to exit Crown. The company in May rejected as too low an A$8.4 billion takeover offer from Blackstone Group Inc.
Separately, Oaktree Capital Management LP has offered to lend Crown A$3.1 billion to fund a buyback of Packer's shares. He owns about 36% of the company.
Star said it “remains open to exploring potential value-enhancing opportunities with Crown,” though engagement with Crown on the merger plan had been “limited.” It said it will closely monitor the outcome of the Melbourne investigation, as well as a concurrent probe into Crown's Perth casino.
In a separate statement, Crown said it remains “willing to engage” with Star in relation to a potential merger. “The board is committed to maximizing value for all Crown shareholders and will carefully consider any proposal that is consistent with this objective,” it said.
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