A buyout of U.S.-based casino operator Wynn Resorts Ltd following the exit of the group’s founder Steve Wynn amid allegations of sexual impropriety, is “likely not on the cards, at least for now”, says a Monday report from brokerage Sanford C. Bernstein Ltd in Hong Kong.
The institution said a buyout of the parent would be “fraught with complexities, in particular with respect to acquisition of the Macau operation”. Wynn Resorts controls Macau casino operator Wynn Macau Ltd.
“We believe Wynn Resorts would not just sell Macau without the whole company being sold,” stated the report from analysts Vitaly Umansky, Zhen Gong and Cathy Huang.
“The Macau government would need to approve any change of control (or even the acquisition of any meaningful equity stake in a Macau concessionaire),” they added.
“It would be a highly political and sensitive process. In the end the Chinese government and Macau government would need to agree to any deal,” they added. Wynn Resorts’ assets were also likely to be expensive to acquire, further noted the brokerage’s team.
“Under the Hong Kong Takeovers Code, it is very likely that a change of control of Wynn Resorts would require a mandatory offer for the publicly-owned portion of Wynn Macau (27.8 percent stake). Consequently, the full equity price (assuming no premium) would be US$24.6 billion,” wrote the institution.
The report authors noted that a key complication with regard to Macau was the expiry in 2022 of Wynn Macau Ltd’s Macau gaming concession. The city’s government has not yet outlined how it will handle the issue of possible refreshment of gaming rights for the existing six casino operators, when those rights expire either in 2020 or 2022. In November, the government said mid-2018 might be an would be an “appropriate” time to provide more details.
“Without assurances on these concession issues an acquisition is very difficult for most, if not all buyers,” stated the brokerage.
Potential suitors
The document did however discuss potential suitors for Wynn’s Macau operation: four of the current Macau operators or their parent organisations; U.S.-based Caesars Entertainment Corp, which missed out on the first phase of Macau gaming liberalisation; Malaysia’s Genting Bhd, a company with global casino interests; and what Sanford Bernstein referred to respectively in its report as a “hypothetical Chinese acquirer”; and a “hypothetical Hong Kong acquirer”.
Sanford Bernstein said Las Vegas Sands Corp, parent of Macau operator Sands China Ltd, was one of the potential suitors for Wynn Resorts, noting “prior discussions between both companies were rumoured”.
Sanford Bernstein indicated that even were a buyout of Wynn Resorts or/and Wynn Macau to be contemplated by Las Vegas Sands, the likely resulting “dilution to Sheldon Adelson family holdings may not be palatable”. In addition, the brokerage said, any buyout of Wynn Macau’s interests would lead to Las Vegas Sands’ market share in Macau being “too high”. The institution added: “Macau would not want to see such concentration.”
Regarding any bid by Caesars Entertainment for Wynn Resorts assets with a view to access to the Macau market, Sanford Bernstein stated: “Caesars Entertainment’s history in Macau is a problem: the government is not likely to allow Caesars into Macau.”
Caesars Entertainment had tried to parlay a Macau golf course into a casino project, but in August 2013 sold the 70-hectare (175-acre) Caesars Golf Macau to local investors for US$438 million; a price 24 percent below the US$577 million that Caesars Entertainment’s corporate predecessor, Harrah’s Entertainment Inc, paid for it in 2007.
Were the Genting group to seek to acquire the Wynn Resorts group, including Macau assets, that might be “more palatable to the Macau government than a U.S. acquirer,” suggested Sanford Bernstein.
Such a move would also be “transformational” for Genting as it would immediately add a Las Vegas and Macau presence and “could lead to a U.S. listing,” stated the brokerage.
China or HK suitor
Any pursuit by a Chinese company of the Wynn Resorts group could get financing “readily” if the Chinese government “views such an acquisition favourably,” said the Sanford Bernstein analysts.
But the brokerage added such a suitor “would likely not want the U.S. business,” and there would be “probity issues potentially”. That was understood to be a reference to possible regulatory hurdles in the United States.
Regarding a potential acquisition by a Hong Kong entity, it would “likely be more palatable” to the Macau government and the national government in Beijing. Sanford Bernstein mentioned privately-held Chow Tai Fook Enterprises Ltd, founded by the late Cheng Yu Tung, a long-time collaborator of former Macau gaming monopolist Stanley Ho Hung Sun, and New World Development Co Ltd, also founded by the late Mr Cheng, as the sorts of firms that might be interested in Wynn Resorts. But the brokerage said a Hong Kong firm “would likely not want the U.S. business,” and there could be probity issues “depending on the buyer”.
Regarding any potential interest from Macau incumbents, Sanford Bernstein stated that the founders of some of these companies might not be interested in the dilution of their interests, or the Macau government would not want to see such a high concentration of market share.
With all the Macau incumbents, they would be paying for a Macau concession they “already” had, noted Sanford Bernstein.
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