19 December 2016

Australia’s Crown Resorts plans Macau exit amid graft crackdown

Crown Resorts, Australia’s largest gaming group, is offloading part of its holdings in Melco Crown, a Macau-focused casino operator listed on Nasdaq. Hong Kong-based Melco International Development, which jointly formed the target with Crown Resorts in 2004, expects to take over a 13.4 per cent interest from its partner for approximately USD 1,188 million. This will reduce Crown Resorts’ stake in Melco Crown to 14.0 per cent.

Additionally, Crown Resorts is disposing of a further 2.8 per cent interest, valued at around USD 236 million, in Melco Crown through a public offering backed by Deutsche Bank, UBS and Morgan Stanley. To hedge against price fluctuations, the underwriters may sell another 27 million of Melco Crown’s American Depositary Shares, which will be borrowed from the acquiror. Cash proceeds from the short sale, estimated at USD 473 million, will be used to compensate the underwriters if Melco Crown’s stock surges above the underwriting price, or will be used to compensate Crown Resorts if the target plunges below.

The agreement came after China detained 18 employees of Crown Resorts in October this year on suspicion of gambling crimes. Gaming, including the marketing of related services, is illegal throughout China, with special administrative region Macau being the only exception. Despite the restriction, companies have often attempted to work around the law by instead promoting resorts where casinos are situated. This draws China’s ire and increases its scrutiny on foreign casinos that set up offices in the country to lure its citizens. Grand Korea Leisure and Paradise are two other gambling firms that have recently fallen prey to China’s crackdowns as 13 of their South Korean employees were detained last year.

Even before the arrest, Crown Resorts was already eyeing a spin-off of its international operations, including its stake in Melco Crown, into a separate listed company. This coincided with the anti-graft campaign which had significantly affected its Macau business. The entity was intended to also hold Crown Resorts’ investment in a Las Vegas development site, a 20 per cent interest in Japanese restaurant brand Nobu, a 50 per cent holding in UK casino operator Aspers and a stake in Caesars Growth Partners, a gaming investor. With the agreement with Melco International in place, Crown Resorts has since abandoned the demerger proposal. It is, however, still pushing ahead with plans to list its properties, including hotel and retail assets, on the Australian Securities Exchange (ASX).

In another deal within the Australian gambling sector, Tabcorp, which had previously proposed to acquire lottery firm Tatts Group for about AUD 7,400 million (USD 5,402 million), is facing other rival bidders. First State Superannuation, KKR, Morgan Stanley Infrastructure and Macquarie Corporate Holdings last week made an unsolicited bid to take over Tatts Group for around AUD 7,343 million. If the latest offer is accepted, the potential suitors will look to spin off Tatts’ wagering and gaming as a separate group on the ASX.

© Zephyr