Minority owners are U.S. hedge funds
Melco Crown, the Macau casino venture owned by James Packer and Lawrence Ho, is planning to buy out the minority hedge fund partners in its $4 billion Studio City resort on Macau’s Cotai Strip. The $4 billion Hollywood-themed complex opened in October.
At the same time, Packer is working to take his Crown Resorts private. Packer holds a 53 percent stake in the company, and 34 percent of Melco, according to the Sydney Morning Herald.
Ho, chief executive of Melco Crown, recently told investors, “It’s no secret that we would love to be 100 percent owners of (Studio City), but ultimately, it’s a matter that depends on valuation.
“And we need to be fair to Melco Crown Entertainment shareholders as well. In due course, if there is a conversation to be had with the minority shareholders at Studio City, we’re always happy to have it—but bearing in mind that valuation is our No.1 concern.”
Melco owns 60 percent of Studio City; the rest is owned by two U.S.-based hedge funds: Silver Point Capital and Oaktree Capital Management, working together as New Cotai. A buyout deal could be worth $US1 billion, Bernstein Research told the Herald.
Melco Crown GGR slid 13 percent in the first half of 2016 to $US1.13 billion—not surprising given the ongoing recession in Macau, where VIP revenue has fallen 38 percent. The decline began in mid-2014 with a government crackdown on corruption and graft, and deepened with a weaker Chinese economy and devalued currency.
“In the medium-term, we believe a potential buyout of the 40 percent minority interest in Studio City remains the most significant company-specific upside catalyst for Melco Crown,” said Bernstein in a research report.
Deutsche Bank analyst Mark Wilson added, “We believe CPH could acquire Crown’s 34.3 percent interest in Melco Crown at market (total cost of $4.1 billion) in order to make the value in Crown more transparent. Melco Crown is trading at an implied discount of 31 per cent to market value.”
