Is Lawrence Ho planning to buy out his old pal and former business partner James Packer?
Brokerage Sanford C. Bernstein says the chairman and CEO of Melco Resorts & Entertainment Ltd., who just announced he would acquire 19.99 percent of Crown (price tag: AU$1.75 billion/US$1.2 billion) eventually will take a controlling or ownership stake in the Australian gaming operator. Ho acknowledged as much, saying he would be open to acquiring more of the company.
According to the Macau News Agency, Bernstein thinks a full acquisition of Crown could strengthen Melco’s junket relationship and customer database in Australian VIP operations and expand Melco’s global footprint Down Under. It may also add leverage for Melco as it prepares to bid on a Japan integrated resort license.
Last month, news emerged that U.S.-based Wynn Resorts would make a play for Crown, but as soon as the reports leaked, the talks were terminated.
In the recent transaction, Nasdaq-listed Melco will acquire 135.35 million shares of Crown Resorts, closing the deal in two equal tranches on June 6 and on or before September 30, according to a written statement.
Bernstein analysts said Melco “will utilize some debt capacity to fund its share purchase,” but it is not “an impediment in Melco’s Japan bid. In fact, owning an Australian operation may help enhance Melco’s standing in the bid process.” According to GGRAsia, the Bernstein team expects Melco to take on an additional US$1.1 billion in debt and use some cash on hand to fund the acquisition of the Crown Resorts stake.
Brokerage Roth Capital Partners said the deal would propel Melco Resorts towards “a full global integrated casino resort company with ‘A grade’ or luxury casino resort ownership. We view Melco’s transition toward a fully international entertainment resort company as helpful to its stock multiple and beneficial for its competitive bid for a casino concession in Japan.”
The Macquarie Group also weighed in, saying Melco’s acquisition “could be a blocking stake” in the Australian casino firm, “limiting competing bidders from acquiring Crown near-term. While we expect some corporate synergies, Crown is a mature entity for which we believe much of the cost takeout opportunity has already been seized.”
Packer has distanced himself from Crown in the past year and has been candid about undergoing treatment for depression and substance abuse. In a prepared statement on the deal, he was quoted as saying: “I am still vitally interested in Crown’s success as a world-class resort and gaming business. The sale allows me to continue my long-term involvement with Crown and at the same time to better diversify my investment portfolio.”
Crown owns resorts in Perth and Melbourne and is building a $2.2 billion VIP tower in Sydney. It’s been hit by a downturn in the Chinese high roller market, with VIP revenues falling 12 percent in the second half of 2018. The slide began in late 2017, when a Crown sales team was arrested in Mainland China for promoting gaming there, a violation of Chinese law. The employees spent months in jail before being released and deported.
Ho said the secret to bring back high-roller play is not to bring in more visitors but to attract wealthy, more sophisticated customers through high-end amenities. “Mainland Chinese or Asian people love going to Australia,” he said. “Whether it is Sydney, Melbourne or Perth, these are all tier-one tourism cities that deserve better visitors rather than just having a lot and lot of people.
“Melco has a very large Asia and China and south-east Asian database,” he continued. “In due course, whether it’s our VIP team or premium mass-marketing team, we can really have a lot of dialogue.”
Ho described his “investment thesis” as a belief that high-value Chinese and Asian customers “are becoming more and more sophisticated and climbing the consumption ladder. These visitors are going to London, Paris, Milan—they are wanting better and better things. Having something like Crown Sydney is going to elevate the game significantly.”
Ho added that his plans are dependent on what James Packer is “happy and comfortable with. We are respectful of his wishes. He has built phenomenal assets and it fits in very well with our vision of what the premium luxury travel industry should look like.”
Asked if Melco would ever sell its stake to Wynn, Ho told the Herald, “We would not be interested at all. To have this opportunity to buy into these world-class Australian assets, I wouldn’t change it for the world.”
When Ho and Packer met in Los Angeles in February, “We had a nice catch-up and we didn’t even talk about anything on the business side,” Ho recalls. “I would never dare to even ask him if he wanted to sell, because I think that would be an insult to him.” But when he heard the Wynn speculation, he called Packer, with whom he once partnered in an entity called Melco Crown. “That’s when I said, ‘What’s your intention? Is it your intention really to divest? If so, only if you say yes, then I am interested as well, because I have so much respect for what you have done.’”
He said it was the equivalent of a handshake deal, with “no banking advisers whatsoever. Unlike the Wynn and Crown deal where they had a whole bunch of lawyers and a whole bunch of bankers involved, we didn’t have that.”
On May 31, after the deal was made public, Ho said, “To have James trust me to be back as a partner after the two-year lay-off period is one of the greatest moments of my life.”
Australian regulators must approve the new shareholder and specifically Ho, a process that could take more than a year to complete, according to Inside Asian Gaming.
