In a surprise announcement last week, Melco Resorts & Entertainment announced that it is retreating from its plan to buy a major portion of Australia’s Crown Resorts. Melco said it’s pulling out due to fallout from the coronavirus, which has caused Asian tourism to plummet and, in an unprecedented decision, forced Macau to close its casinos. But the timing coincides with hearings in Australia that will determine Crown’s suitability as an operator.
In the February 6 announcement, Melco said the decision “reflects Melco’s commitment towards its employees, customers, business partners and other stakeholders … until such time as the global health emergency and the related travel restrictions that affect a significant part of its customer base are lifted.”
Melco pinpointed its core operations as those businesses where it’s the managing and majority shareholder. This includes operations in Macau, the Philippines, and Cyprus, as well as its efforts to win an integrated resort license in Japan.
“Melco will continue its operations in those jurisdictions and carry out key investments currently earmarked for Macau, Manila, Cyprus and Japan, including the construction of Studio City Phase II and City of Dreams Mediterranean,” the statement added.
According to the Sydney Morning Herald, Melco agreed last May to pay Crown honcho James Packer $1.76 billion for a 19.9 per cent stake in Crown, to be sold in two tranches of 9.99 per cent. At the time, Melco Chairman and CEO Lawrence Ho said he was interested in a controlling stake in the group. But the second tranche was put on hold after the New South Wales gaming regulator launched “an unprecedented public inquiry into probity issues around Crown and Melco, including whether the share sale breached the terms of Crown’s Sydney casino license,” the Herald reported.
The license for Crown’s Barangaroo casino, now under construction in Sydney, prohibits the Australian company from any association with Macau gaming kingpin Stanley Ho and other individuals and companies linked to organized crime. Stanley Ho is Lawrence Ho’s father. Though he’s never been convicted of a crime and now is in his 90s, the elder Ho’s colorful past has occasionally cast a shadow on his entrepreneurial son.
The Hong Kong listed company’s statement concluded, “While Melco believes Crown has world-class assets that are complementary to its global business, it is Melco’s belief that, at this time, its capital needs to be deployed on its core assets.
“Melco does not currently intend to increase its existing shareholding in Crown from its current position. Melco also does not intend to seek representation on Crown’s board.”
According to research by ratings agency S&P, Melco may indeed be imperiled by the coronavirus outbreak because it operates casinos in the Macau. S&P said Melco “has limited flexibility to absorb a prolonged and severe decline in its cash flow.”
