Crown Resorts’ retention of its prized Victorian casino licence despite years of egregious legal and moral breaches has emboldened investors in the beaten-down sector, and could reignite take over interest in the gambling giant.
Victoria’s royal commission into Crown found in its final report, released on Tuesday, that the group was unsuitable to run a casino but should be given two years to reform itself under the supervision of a state-appointed “special manager”.
Crown has retained its Victorian casino licence. Credit:Jason South
Crown’s ASX-listed shares closed 8.7 per cent higher at $10.50 – the highest they have traded since July – while shares in its Sydney-based rival The Star Entertainment Group jumped 4.3 per cent to $3.61.
The Star will face its own public inquiry in NSW in March next year, following reports in this masthead that it failed to prevent organised criminals and money launderers infiltrating its casinos.
Steve Johnson, chief investment officer at investor Forager Funds, said the outcome for Crown was a positive for the casino sector in general, which is why The Star’s share price also jumped.
“The whole sector has had a regulatory risk discount applied to it, so I think there’s a view that that risk is lesser today than it was yesterday,” said Mr Johnson, whose fund owns Star shares.
Mr Johnson said that improving the industry’s approach to gambling harm and criminal exploitation was a positive for investors in the long term by making Crown and The Star more sustainable businesses, while removing the regulatory cloud over the sector also put M&A activity back on the agenda.
“If you can reduce longer-term regulatory risk… these assets are trading at prices that are very, very cheap by global standards,” he said.
Crown’s major shareholder and former executive chairman James Packer will have to sell down his 37 per cent stake in the company to 5 per cent or less by September 2024, as part of an ownership cap recommended by Commissioner Ray Finkelstein to prevent his influence on the company.
Crown received and turned down an $8 billion takeover offer in March from private equity group Blackstone, which already owns 10 per cent of the company. The Star then proposed a $12 billion merger of the two companies in May. The Star withdrew the offer after it appeared there was a real chance the royal commissions in Victoria and Western Australia could cost Crown its licences.
Macquarie analyst David Fabris said in a note to clients that the market was “largely pricing in a favourable outcome” from the Victorian royal commission, while Crown keeping its licence ”should provide a precedent” for its Sydney and Perth licences.
NSW suspended the licence for Crown’s new Sydney casino last year in light of evidence of criminal infiltration and money laundering at its Melbourne and Perth casinos, while a royal commission in Western Australia into its Perth casino will conclude in March next year.
Goldman Sachs analyst Desmond Tsao said that Crown now had two years to satisfy government suitability requirements and potentially retain its Melbourne licence, “rather than the bear case scenario of an immediate cancellation”.
“We see this as also positive for [Star] and the sector more broadly from a regulatory risk perspective,” Mr Tsao said.
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