Just weeks after discussions with Wynn Resorts came to a halt, Crown Resorts Ltd. announced last week that it had sold a 19.99 percent stake in the company to Melco Resorts & Entertainment at A$13 a share for a total of A$1.76 billion (US$1.22 billion).
Melco Chairman and CEO Lawrence Ho said his company would be interested in more.
“Subject to obtaining requisite regulatory approvals, Melco welcomes the opportunity to increase its ownership in Crown,” Melco said in a statement to the Nasdaq stock exchange.
The shares came from CPH Holdings, owned by former Crown Chairman James Packer, who is left with about a 25 percent stake in Crown Resorts following the transaction.
Packer said he is still interested in Crown and believes the Melco investment makes it stronger.
‘Crown has been a massive part of my life for the last 20 years and that absolutely remains the case today—my continuing Crown shareholding represents my single largest investment,’ Packer said. ‘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.’
Ho believes the deal makes both companies stronger.
“I view Melco’s investment in Crown as an incredible opportunity to purchase a strategic stake in what I believe to be Australia’s premier provider of true integrated resort experiences,.” Ho said.
“Crown’s resorts in Perth and Melbourne are world class entertainment destinations and I believe that Crown Sydney, much like Melco’s Morpheus property, will create an architectural icon for the city, the country and the world.”
Melco and Crown were partners for 13 years, developing Altira, City of Dreams Macau, Studio City and City of Dreams Manila. The two companies split in 2016 after more than 20 Crown officials were detained in China and charged with illegal gambling promotion.
The arrests coincided with struggles of Crown financially and the decline of Packer’s mental health. He stepped down as chairman and member of the board in 2017, but recent comments and photos show him in better mental and physical shape.
One concern about the Melco partnership would be a previous reluctance from Australian regulators to license anyone connected to Macau casino mogul, Stanley Ho (Lawrence Ho is one of his sons). Stanley Ho controlled gaming in Macau for 30 years and has been accused of connections to organized crime, although nothing has ever been proven. Lawrence Ho has previously been licensed as one of the principals for the Melco Crown partnership, so this should not be an issue.
Packer had previous discussions for a sale to Wynn Resorts several weeks ago, but the talks collapsed when they became public and stock prices in both companies fluctuated wildly.
Analysts were generally favorable.
David Bain, gaming analyst for Roth Capital Partners, thinks the deal is good for both sides.
“We believe the Crown transaction further shifts Melco away from what it is often described to as a ‘Macau pure play’ (despite Melco’s Manila operations) toward a full global integrated casino resort company with ‘A grade’ or luxury casino resort ownership,” Bain wrote in a note to investors. “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.”
“Further, we believe Melco will leverage VIP relationships to improve Crown operations (recall international Crown marketing halted several years back, leaving its Asia VIP play fairly depressed and there is little cannibalization between Australia and Macau).
Of note, Crown will open a new, high-end casino resort in on the Sydney Harbor in 2021, giving Melco another casino opening catalyst (combines with Phase II at Studio City).”
The “high end” Sydney casino is planned for the Barangaroo waterfront section of the city and will be limited to foreign high rollers.
Vitaly Umansky of Bernstein said Melco would likely borrow $1.1 billion to fund the purchase, but it would be cost neutral since dividends from Crown should cover the interest.
Some speculated that this purchase is just a precursor to a full buy of the company. Joe Greff of JP Morgan believes it will happen slowly and incrementally. He points out that Melco could buy up to 3 percent of the company every six months without regulatory consequences.
And finally the buy makes Melco more of a global company and will increase the odds that Melco could win a Japanese license as a result.
