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The world's No. 2 casino operator Wynn Resorts made a A$10 billion ($7.1 billion) takeover approach for Australia's Crown Resorts, the target company said on Tuesday, hoping to expand its geographic reach as it faces growth hurdles in Asia.
The deal would offer Wynn a hedge against Macau, the Chinese gambling hub where its licenses are up for renewal, by giving it two lavishly revamped Australian casinos and a third still being built on the prized Sydney harbor front.
For Crown 47% owner James Packer, who re-badged his father's media empire as a gambling concern in 2007 only to withdraw from business engagements last year due to mental illness, the deal would end his career as a casino mogul with a A$4.7 billion payout.
He would end up Wynn's biggest shareholder with 9.8% of its shares, based on its current number of shares on issue.
Crown shares jumped 20% to A$14.07 in afternoon trade in Sydney following the announcement, their biggest intraday gain since the company re-listed with its current name 12 years ago. Even so, they were still below the indicative buyout price of A$14.75 due to uncertainty about whether a deal would eventuate.
"It's a preliminary-style bid which doesn't yet provide an adequate premium for control, and most would expect there to be both more debate about the strategic merit and pricing," said Angus Gluskie, managing director of White Funds Management, which holds Crown shares.
The deal, which would be subject to regulatory approval, would be Australia's biggest M&A deal so far this year. The gambling regulator in Victoria, the location of Crown's flagship casino, said it must be satisfied any new owner is a suitable gambling operator.
Crown said Wynn was proposing to buy the company half in cash, half in shares. Talks were at a preliminary stage, the companies had not agreed on a value or deal structure, and current proposal had not gone to the board, it added.
A Wynn spokesman declined to comment.
A spokesman for Consolidated Press Holdings, Packer's company which holds his Crown shares, was also not immediately available for comment.
While Wynn offered a chunky 26% premium to Crown's last share close, a deal would hand the Las Vegas-based company a once-formidable rival at a vulnerable moment.
Crown tore up its global expansion plans after 18 of its staff were arrested in China in 2016, and focused on shining up its Australian assets including casinos in Sydney, Melbourne and Perth. As part of that pull-back, it sold a casino development site in Las Vegas to Wynn for A$370 million.
Crown then faced a new challenge, with a downturn in Chinese consumer spending crimping revenue from Chinese high-rollers at its Australian tables. Before news of the Wynn approach, its shares had fallen by a fifth since August.
Macquarie Group analysts said they needed more information to understand the benefits to Wynn, but "given that no assets are collocated geographically, the ability to generate synergies is most likely related to corporate cost benefits and VIP".
As well as its properties in the United States and Macau, Wynn over the past year has sought to diversify geographically to protect its growth prospects if its Macau licenses are not renewed. Already that has included ramping up promotion of a resort in Japan, a market seen as the next potential goldmine to Macau and a former expansion target for Crown.
The U.S. company has seen a series of shake-ups following sexual misconduct claims against former CEO Steve Wynn. The company's largest shareholder, Elaine Wynn, who co-founded the firm with her ex-husband, is agitating for changes on the board.