Australia’s Crown ‘Crying Out’ for Transparency, New Ceo Tells Inquiry

Steve McCann told a Victoria state inquiry “many things” concerned him before starting last month at the company, where a regulator had found links with organised crime and inappropriate control of the board from billionaire shareholder James Packer.

The regulator, in the state of New South Wales, found Crown unsuitable for a gambling licence at a just-opened, A$2.2 billion ($1.67 billion) resort in Sydney. That prompted numerous top-level departures – including of McCann’s predecessor – and triggered inquiries in Victoria and Western Australia states where Crown operates its two casinos.

“There is a very significant population of Crown who are crying out for the ability to speak up, the ability to be involved, the ability to restore the pride in the organisation that they used to feel but is currently challenged because their family and friends are struggling with what’s going on,” McCann, formerly CEO at property giant LendLease Group, said at the Victoria inquiry.

“There are a lot of people who are concerned about their future. If they feel uncomfortable, they should speak up. I’m not asking them to do something that’s inconsistent with their values,” he said, in his first public remarks since joining the company.

In February, the New South Wales regulator said Crown needed sweeping change to its board and culture to be suitable for a Sydney gambling licence. That followed a year of hearings which aired claims of money laundering, governance failure and indifference to the safety of 19 staff jailed in China in 2016 for breaking that country’s anti-gambling law.

At the Victoria inquiry on Tuesday, McCann, who is yet to receive regulatory clearance to run a casino, acknowledged he was not told about underpayment of hundreds of millions of dollars of gambling tax until six days into the CEO role, but rejected suggestions the delay indicated poor governance.

“I didn’t find it surprising or concerning because the organisation had been under the impression that it had disclosed what it thought it needed to disclose,” he said.

“It was obviously disappointing now that I know what I know, but there was lot of activity around trying to disclose everything.”

($1 = 1.3189 Australian dollars)

(Reporting by Byron Kaye; Editing by Christopher Cushing)

Australian Financial Crime Watchdog Widens Probe on Casinos Already Reeling From Covid

By Byron Kaye

Months into an investigation of top player Crown Resorts, the Australian Transaction Reports and Analysis Centre (AUSTRAC) said it was formally looking into possible breaches of background check rules at rival Star Entertainment Group and New Zealand’s SkyCity Entertainment Group.

That means owners of casinos in Australia’s five most populous cities now face enforcement investigations that could carry fines or restrict their licences.

Crown already has been under intense pressure after an inquiry this year found it unfit for a licence at a just-opened A$2.2 billion Sydney casino, sparking royal commissions in two other states and fueling class-action lawsuits, as well as an AUSTRAC probe that was expanded to its Perth city resort on Monday.

“The Australian casino sector is at risk of criminal misuse due to the products and services they offer,” AUSTRAC CEO Nicole Rose wrote in an editorial published in The Australian newspaper hours before the casino operators disclosed the investigations in market filings.

“We have an enforcement investigation under way at Crown casino that demonstrates the seriousness of our concerns. And we also have significant compliance work under way on the casino sector,” Rose wrote.

AUSTRAC later confirmed the investigations – plus a separate investigation of No. 3 lender National Australia Bank Ltd – without commenting further.

All three casino companies said AUSTRAC was concerned with their management of “customers identified as high risk and politically exposed persons”, that the agency had not decided whether to take enforcement action, and that they would cooperate fully.

The crackdown may meanwhile complicate a A$9 billion buyout by Star of larger rival Crown, which has been fielding takeover approaches.

“If it’s found to be a systematic and ongoing lackadaisical attitude to enforcement then (a regulator objection) seems likely,” said Nathan Bell, portfolio manager of Intelligent Investor, which has Crown shares.

“If Star is seen to have good standards and there is a genuine effort to weed out these people then … the regulators would rather Crown was kept in Australian hands and Star’s takeover proposal would remain live.”

Crown shares were down 1.5% in a flat overall market and Star shares were down 3%. SkyCity’s New Zealand-listed shares did not trade because of a public holiday.

In a separate development, Crown said it had received legal advice that it had contravened casino laws by selling over A$160 million of gambling chips to people paying with credit or debit cards from 2012 to 2016 – potentially sparking yet another investigation.

($1 = 1.2915 Australian dollars)

(Reporting by Byron Kaye; editing by Diane Craft, Stephen Coates and Gerry Doyle)

Australia’s Star Eyes Crown in $7 billion Play, Vies with Private Equity

By Byron Kaye

Three months after Crown was declared unfit for a gambling license at its new Sydney resort tower, Star said the share-swap takeover approach would create “one of the largest and most attractive integrated resort operators in the Asia Pacific region”.

The move presents Crown shareholders with a third option after buyout giant Blackstone Group earlier upped its all-cash indicative bid to A$8.4 billion, while Oaktree Capital Group has proposed to bankroll a A$3 billion buyback of Crown’s founder’s stake, removing a regulatory concern.

Star’s approach reflects the intense interest in Crown, which has prized tourism and real estate assets in three of Australia’s four biggest cities but whose profits and share price have been hit by coronavirus-related border closures and regulatory woes.

If the deal goes ahead, Star said it would pursue a sale and leaseback of the companies’ combined property portfolio covering dozens of hectares of sought-after waterfront land, generating “significant value”.

Shares of both companies touched their highest intraday levels since before the pandemic, giving them a combined market capitalisation of A$13 billion by the close, as investors warmed to the longer term benefits that Star said were built into its proposal.

Star’s proposal “has the synergies, and then the sale-and-leaseback provides the firepower to do buybacks to realise full value for both sets of shareholders,” said John Ayoub, portfolio manager of Wilson Asset Management which has shares in both.

An inquiry in February found Crown had enabled money laundering on its premises, knowingly dealt with tour operators linked to organised crime and disregarded the safety of staff in China who were jailed in 2016 for breaching its gambling ban. It cited the influence of founder and 37% owner James Packer over the Crown board as a governance problem.

Crown, which lost its CEO in the inquiry fallout, said on Monday said it had appointed Steve McCann, the head of property developer Lendlease Group, to the role. Crown said it was considering the Star proposal, along with the others.

Following the inquiry Packer pulled his representatives from the Crown board and said he would defer to the company’s leadership about its future. Since stepping back from running the company in an official capacity in recent years, Packer has tried several times to sell down or exit his stake.

A Packer spokesman was not immediately available for comment on Monday.

‘ANTITRUST’

While the Star proposal would not require clearance from foreign takeover regulators, as Blackstone’s would, it may attract antitrust scrutiny since it would create a single gambling behemoth in Australia without a competitor.

When the New South Wales state government approved Crown’s Sydney asset in 2013, it cited the need for competition for Star as a reason.

An Australian Competition and Consumer Commission spokesperson said Star had made an approach about its proposal but “we will wait for a submission and commence a public review after that, if the matter progresses”.

Star CEO Matt Bekier said there was a small overlap of the two companies’ businesses, which would compete only in Sydney once Crown was allowed to run its casino, and “we would position the brands at the ends of the consumer spectrum, rather than letting both brands drift into the centre”.

Unlike Star, which operates slot machines and mass entertainment, Crown, which is not allowed to run slot machines in Sydney, was positioned as an upmarket participant, Bekier noted.

“In an ordinary market, a two-to-one merger would not be something that would be easy to approve at all,” said Yane Svetiev, an associate professor at University of Sydney Law School who specialises in competition law.

“(But) I can see somebody making an argument that perhaps it doesn’t matter that much because the market is already heavily regulated anyway,” he added.

Star’s intraday peak of A$4.30 would value the Crown purchase at A$7.8 billion. Star said it estimated its shares would be worth more than A$5 each if the bid were to proceed. The jump in Crown shares gave it a market capitalisation of A$8.8 billion.

Representatives of Blackstone and Oaktree declined to comment.

($1 = 1.2739 Australian dollars)

(Reporting by Byron Kaye; additional reporting by Shashwat Awasthi in Bengaluru; editing by Daniel Wallis and Richard Pullin)