Star agrees to Bally’s takeover bid after refinancing falls through

Following the collapse of hopes for a substantial refinancing package, Star Entertainment has officially entered into a last-minute acquisition agreement with U.S.-based Bally’s Corporation, valued at AU$300 million (£141 million/€164.3 million/US$179.4 million).

This move, publicly disclosed on April 7 through an ASX filing, marks the conclusion of a challenging period for Star, which has been navigating through financial uncertainty for several months. An ambitious AU$940 million refinancing proposal with Salter Brothers fell through last week, leaving Bally’s as the sole remaining bidder. Since expressing interest in acquiring Star as early as February, Bally’s submitted this formal offer on March 10.

Under the terms of the agreement, Bally’s will provide an immediate AU$100 million capital injection to Star by mid-week, circumventing the need for shareholder approval. This initial funding is set to convert into approximately 15% equity shares, alongside AU$66.6 million in subordinated non-convertible debt.

The remaining AU$200 million will be disbursed in a subsequent tranche, contingent on shareholder and regulatory approvals. The total compensation could be divided into AU$100 million payments upon the receipt of each required approval, with a deadline for finalization set for October 7, should regulatory clearance remain outstanding.

Ultimately, Bally’s could control up to 56.7% of Star’s shares, exceeding the 50.1% originally outlined in Bally’s bid. The debt is due for maturity by July 2, 2029, with an established interest rate of 9%. Bally’s acquisition price stands at eight cents per share, compared to Star’s existing trading price of 11 cents, although trading has been suspended for over a month due to the failure to submit the latest financial report.

A Brighter Future for Star and Bally’s

Star intends to convene a shareholder meeting in June to discuss the transaction. In their recent filing, Star’s board expressed a unanimous recommendation for shareholders to support the deal.

Bally’s Chairman, Soo Kim, remarked on the implications of the acquisition: “This transaction provides Bally’s the opportunity to infuse The Star with what it needs to regain its position as Australia’s preeminent gaming destination. This deal allows The Star shareholders to participate in what we confidently believe will be a brighter future together.”

Furthermore, Bally’s President, George Papanier, expressed enthusiasm about extending Bally’s operational know-how to the Australian gambling landscape. Currently, Bally’s operates 19 casinos across 11 U.S. states and recently acquired the former Aspers Casino in Newcastle, UK. Despite the complexities of entering the Australian market, Papanier affirmed that his team is well-equipped to meet the challenges ahead.

Potential Additional Funding from Bruce Mathieson

The discussed financial arrangement may evolve slightly based on negotiations with Star’s largest individual shareholder, Bruce Mathieson. This prominent figure in the Australian gambling space had previously advocated for Bally’s acquisition, initially suggesting a financing figure of AU$50 million.

Star has announced that discussions are ongoing with Mathieson regarding potential financial support of up to AU$100 million. Should Mathieson endorse this funding, Bally’s financial commitment would adjust down to AU$200 million. The agreement is intricately tied to Mathieson’s capital involvement and has various contingencies in place.

Mathieson currently holds a 10% stake in Star and has indicated readiness to increase his investment should the opportunity arise. Both he and Kim will be designated as board observers as a part of the deal’s framework.

Challenging Times Ahead for Star

This acquisition comes at a time of significant challenges for both companies. Star has faced an extended period of tumult, impacted by regulatory scandals, financial penalties, and a notable exodus of key personnel. In its previous peak during the late 2010s, Star’s stock price soared above AU$5, whereas its current trading price sits at a mere 11 cents, still under suspension due to regulatory delays.

Star’s flagship venue, Star Sydney, has been deemed unsuitable twice in regulatory investigations, the latest verdict occurring in October. The casino must demonstrate compliance with suitability standards by September 30, further compounded by the ongoing acquisition by Bally’s. Additionally, Star Gold Coast was ruled unsuitable for licensure in 2022, with a previously planned three-month license suspension now extended to September 30.

At the federal level, Star remains under scrutiny from Australian financial crime authorities, with a substantial fine anticipated. The company also divested from its high-profile Queen’s Wharf Brisbane project, selling a 50% stake for AU$53 million to alleviate debt. This decision aligned with efforts to stabilize the Gold Coast property but drew Bally’s resistance, as the latter aimed to maintain asset cohesion.

The Queen’s Wharf development is minimally referenced in the deal framework, noting that Bally’s acknowledges Star’s current engagement with the Destination Brisbane Consortium and its ownership consolidation strategy for the Gold Coast.

Bally’s Expanding Portfolio and Challenges

As Bally’s embarks on the Star acquisition, it adds to a burgeoning list of ambitious projects.

Bally’s is not only scheduled to manage a portfolio of existing casinos but is also pursuing extensive developments across the United States, including a flagship casino in Chicago supported by significant financing from Gaming and Leisure Properties (GLPI). The company is also constructing a casino-resort on the Las Vegas Strip, formerly the Tropicana, and is vying for one of the three available downstate New York casino licenses with a proposal for development on the Bally Links golf course in the Bronx.

Additionally, Bally’s was acquired last year by Standard General, a hedge fund helmed by Chairman Soo Kim. Since early 2024, the company has faced challenges with various projects but remains committed to advancing its objectives. Venturing into the Australian market poses considerable risk due to Star’s present difficulties; however, Kim remains optimistic about the intrinsic value within Star’s operations.

“We view Star as a distressed asset with underlying value,” Kim emphasized in a recent interview. “These operating challenges are familiar territory for us, and we are eager for the opportunity to turn things around.”