NSW investigation sees Melco delay Crown stake acquisition

29 August 2019

Melco Resorts & Entertainment has amended its agreement to acquire a 19.99% stake in Australia’s Crown Resorts to allow the New South Wales Liquor and Gaming Authority to complete an investigation into the transaction and other matters related to the seller.

Having struck the agreement to acquire 135.35m shares in Crown Resorts in May, Melco closed the purchase of the first tranche of 67.675m shares in June. The second tranche of 67.675m shares was to be acquired by 30 September.

However, after the Liquor and Gaming Authority announced that it was to scrutinise the deal, and other allegations made against Crown, earlier this month, the pair have agreed to defer closing on the sale for up to 60 business days following completion of the investigation.

Patricia Bergin, a former judge of the Supreme Court of New South Wales has been appointed to lead the investigation, for which the terms of reference were announced earlier today (29 August). It relates to a licence awarded to Crown in 2014 for a restricted gaming facility, to be located in Bangaroo, an inner-city suburb of Sydney.

The investigation will first examine the suitability of Melco Resorts, and its shareholders Lawrence Ho, Geoff Davis, Stephanie Cheung, Akiko Takahashi, Evan Winkler, and Clarence Chung, are suitable to own a property licensed under the Australian Casino Control Act.

Bergin’s investigation must determine whether they are of good repute, and whether they have any business association with any person, body or association who is not of good repute.

The second area to be probed relates to allegations published in the Australian press regarding Crown Resorts and its business associates. These allegations claim Crown or its associates may have engaged in criminal activity and breached gambling laws.

The judge must determine whether Crown is suitable to hold the Bangaroo licence, and if not, what would have to be done to ensure it was suitable. Furthermore, Bergin must rule on whether the Crown’s sale of the stake to Melco represents a breach of the licence agreement or any other regulatory agreement.

She will also be asked to decide whether the Casino Control Act is fit for purpose, against a backdrop of an increasingly complex patchwork of risks faced by gaming and casino operators. No deadline has been set for the investigation to conclude, though Liquor and Gaming NSW said it should be completed “as soon as reasonably practicable”.

Should the investigation lead to the closing of the second tranche sale occurring after 30 September, the price is to be reduced by an amount equal to any dividends received on these shares between 6 June and the closing date.

However, it will also be increased by AUD$0.05 per second tranche share per calendar month after 30 September. Per the agreement between Melco and Crown, the sale must be closed by 31 May 2020, and from this date Melco could cancel the acquisition, though this deadline can be extended by up to six months.