Star, Bally’s takeover deal amended following shareholder input

The AU$300 million (£144.2 million/€168.9 million/$185.1 million) investment plan by Bally’s Corporation to acquire the distressed Australian operator Star Entertainment has been revised to AU$200 million. This adjustment follows a significant AU$100 million contribution from Star’s majority shareholder, Bruce Mathieson.

The details of this revised agreement were disclosed via an ASX filing on April 8. Bally’s and Star initially outlined the original investment framework the day prior, laden with conditions contingent on Mathieson’s approval, which has now been confirmed.

In light of Star’s ongoing financial struggles, the agreement has been structured into two tranches: one for AU$100 million to address immediate liquidity needs and another for AU$200 million, aimed at securing the company’s longer-term survival. The first tranche, comprised of convertible notes and subordinated debt, is designed to facilitate operational continuity without regulatory delays.

Once necessary shareholder and regulatory approvals are secured, the second tranche will be accessible, pending completion no later than October 7. A shareholders’ meeting has been scheduled for June to discuss this and related matters, though the timeline for regulatory approvals remains uncertain.

Mathieson, a billionaire in the pub and casino sector, previously held a 10% share in Star. Under the new terms, he will acquire 5% of the convertible notes and one-third of the subordinated debt in the first tranche, totaling approximately AU$33 million of his investment commitment, with additional funds allocated to the convertible notes in the second tranche.

As of now, Star has not publicly addressed this transaction. The company is concurrently preparing its financial report for the period ending December 31, with its stock price having been suspended at 11 cents since late February due to regulatory concerns.

“New Star” Poised for Improvement, Says Kim

In the wake of this announcement, Bally’s chairman, Soo Kim, provided an in-depth interview with Inside Asian Gaming, discussing various facets of the transaction and Bally’s strategic vision for the forthcoming investment.

Kim articulated that the two-phase deal structure was implemented to ensure that Star has sufficient liquidity while Bally’s prepares to assume operational control, a process Kim anticipates could begin within 90 days. This initial timeframe is critical for understanding Star’s business landscape and crafting a proactive “Day One action plan.”

Moreover, Kim addressed the company’s stance on Star’s recent strategic retreat from the multi-billion-dollar Queen’s Wharf joint venture, which saw Star opt to divest its 50% stake for AU$53 million. Despite Bally’s initial reservations about this decision, Kim indicated that the planned exit appears to be proceeding as expected, which would reduce Star’s operational footprint to two casinos.

“We acknowledge that [Star] has signed an agreement. They are still moving towards formulating a final contract, and we are currently assessing the full breadth of the situation,” he noted.

Regarding Mathieson, Kim confirmed that Bally’s engagement with him has been ongoing, referring to him as a “long-suffering shareholder.” He expressed confidence in their partnership to revitalize Star’s value proposition significantly.

“The ‘new Star,’ as I refer to it, will surpass the prior iteration,” he asserted.

Navigating Regulatory Challenges Ahead

Peter Cohen, former chief regulator in Victoria and now a consultant with The Agenda Group, commented on the implications of the Bally’s acquisition, noting its significance in placing another American corporation at the helm of an Australian gaming enterprise. This observation draws parallels to Blackstone’s recent acquisition of Crown Resorts for AU$8.87 billion in 2022.

Cohen highlighted the uncertainty surrounding existing disciplinary actions undertaken by regulators in New South Wales and Queensland against Star in light of the ownership transition. With Star’s casino licenses currently suspended, the company is also positioning itself to face substantial financial penalties from AUSTRAC, Australia’s foremost financial crime watchdog.

Reflecting on the Blackstone-Crown transition, Cohen remarked, “The Victorian regulator’s responses were notably stringent, resulting in hundreds of millions in penalties.” Given this precedent, Star could anticipate similar regulatory scrutiny moving forward.

“It remains to be seen how New South Wales and Queensland will react. Under this new framework, Star fundamentally persists, implying that it’s plausible for the regulators to impose significant financial penalties. Additionally, AUSTRAC is unlikely to forgo substantial financial recompense given prior anti-money laundering violations,” he concluded.