Another day, another billionaire oligarch imposing himself on a previously diversely controlled public company.
This time it was Gold Coast-based pokies billionaire Bruce Mathieson, who revealed to the ASX yesterday that he had shelled out a lazy $141.7 million to snap up a 9.97% stake in Star Entertainment.
After much heavying by the press, corporate advisers and lenders, Star finally announced its $800 million emergency capital raising last Thursday. However, the company reportedly didn’t know Mathieson had put together a stealth 4% stake before the raising was launched. It’s unclear how he then got to 10%.
The Mathieson ASX disclosure was pretty threadbare. Companies are meant to reveal each individual trade, as can be seen in these examples from Macquarie and US index giant State Street. However, Mathieson only told the ASX that he spent $141.4 million between February 15 and February 28.
The reason this matters is the market doesn’t know how many more shares Mathieson will have to buy on market to maintain his stated goal of owning the maximum 9.99%.
At the moment he’s only got 5.86% of the expanded capital base, given that Star is about to issue 666.7 million new shares, enlarging its capital base by 70% to 1618.6 million shares. The $595 million already committed from big-end-of-town investors doesn’t settle until March 6, whereas the $205 million retail offer settles on March 17. It is not clear which offer Mathieson is going through.
Mathieson has been a bit crazy-brave in backing the embattled casino giant without seeming to do due diligence or talking to a new management team. Star did the usual PowerPoint ASX announcement required by ASIC in these accelerated offers, producing arguably the biggest “key risks” disclosure you’ll ever see in a secondary offer.
There was chapter and verse on everything, from ATO disputes (the ATO wants another $142 million), rorting of residency claims with high rollers ($12.7 million provision), fines ($100 million from both NSW and Queensland), suspensions of licences in both states, a $150 million provision for the coming AUSTRAC money laundering claims, four shareholder class actions and even warnings that Star’s transactional banker is walking on 31 October and they may not be able to find another bank to take them on.
As for the structure of the raising, it was disappointing to see it included a $115 million selective placement at $1.20, which was a hefty 21% discount to the previous close of $1.52. Star shares were trading above $6 in 2019 and closed at $1.44 yesterday.
Even worse, the main $685 million three-for-five entitlement offer at $1.20 was non-renounceable and the 70,000 retail shareholders are banned from applying for any short-fall shares in the $205 million retail component, which guarantees it will fall at least $50 million short.
Investment bankers Barrenjoey and Macquarie are being paid a tasty $13.7 million fee to underwrite and manage the capital raising and both have a long history of mistreating retail shareholders.
The other questionable aspect was giving two controversial Asian shareholders (Chow Tai Fook and Far East) a special deal after they pre-committed $80 million into the capital raising, comprising their pro-rata share, plus a proportional slice of the selective placement to avoid dilution.
Given probity concerns, Star would have been better off treating them like everybody else. Instead, they won’t have to stump up the cash until the retail offer closes on March 13, in order to avoid temporarily climbing about 10% and sparking probity concerns.
It will also be interesting to see how many placement shares Mathieson was allotted and whether he has been promised part of the retail shortfall.
Mathieson was trailing his coat for a Star board seat during press interviews yesterday, even claiming he’ll be shareholder 30 years from now. However, old man Bruce is 78 and stepped off the Endeavour Group board last year, so his son Bruce jr could represent the family’s 15% stake, which is currently worth $1.8 billion.
The Mathiesons got rich on poker machine rollouts in east coast pubs during the 1990s and then profitably partnered up with Woolworths in 2004, jointly buying ALH after it was floated off by Foster’s.
However, the pokies got too toxic for Woolworths in the end, so they demerged Endeavour Group two years ago, initially retaining 14.6% before selling down to less than 10% last year.
The Mathieson family now has five different exposures to the $15-billion-a-year Australian poker machine market. On top of Endeavour Group and Star, Bruce owns a few pubs in his own name and then both of his daughters are married to wealthy pub owners who are in the top 10 Victorian pokies licences owners, as was detailed in a recent Sunday Age piece.
Hotel chains are meant to be limited to 35% of pub pokies in Victoria but between Bruce and his two daughters they now have around 45%. Remarkably, the ever-obliging Andrews government and Dan’s gaming regulator have officially declared that Bruce is not associated with either of his daughters.
The importance of being independent of his daughters is perhaps why Mathieson said the following to SMH columnist Elizabeth Knight about his Star investment: “The main thing was to get to where I am [10%]. I will reassess it with my son and then we will have a bit of a think about which way we are going to go.”
If history is any guide, when it comes to addictive poker machines, the Mathieson family just can’t get enough. They are, for now, the biggest shareholder in Australia’s largest listed casino company which is currently licensed to operate 4783 machines across its three casino properties.
At least Star disclosed that gamblers lost $409 million into these machines in the December half. Endeavour Group has more than 12,500 machines and still refuses to reveal how much it fleeces from gamblers.
If one of the Mathiesons join the Star board, the family will be formally associated with running almost 10% of Australia’s 200,000 poker machines.
And as things stand today, every single one of those machines still takes cash, despite the bold cashless plans of NSW Premier Dominic Perrottet.
