As previously announced, Crown Resorts last week pulled the trigger on its withdrawal from the international casino industry. But the specifics were different than first revealed.
Majority shareholder James Packer outlined a plan a plan that would have the company sell its half of its interest in Melco Crown, a company founded by Packer and Lawrence Ho to develop casinos in Macau. The company paid Wynn Resorts $900 million for a sub concession in order to enter the Macau gaming industry and remains one of only six companies active in the space.
Crown had announced it would spinoff its international operations into a separate company, but last week said will sell its interest in the company to its partner, Melco International Development for $1.2 billion. After the sale, Crown’s interest in Melco Crown will be reduced to 14 percent from 27.4 percent. Earlier this year, Crown had sold shares for $800 million that had first dropped its equity standing. After the sale, Melco will own 51 percent of the company for the first time.
“This is all about risk management,” said Theo Maas, with Sydney-based Arnhem Investment Management. “You’re now looking at a much more predictable business with a much stronger balance sheet.’’
Vitaly Umansky, an analyst with Sanford C. Bernstein & Co., said it was about a restructuring of Crown.
“The read through should not be that Crown is bailing on Macau,” he wrote in a note to investors. “Instead, the sell-down is related to Crown’s own internal restructuring and change in strategy.”
The decision to sell rather than create a new entity was apparently influenced by the arrest in China last month of 18 Crown employees charged with promoting gambling in China where it is prohibited. The arrests raised doubts about Crown’s ability to attract the valuable VIPs for its Australian casinos. With casinos in Melbourne and Perth, Crown also has plans to build a mammoth VIP casino in Sydney’s Bangaroo section.
Crown first announced its international plans after two years of declining revenues in Macau. The revenue decline had hit Crown revenues hard, causing a decline in the company’s stock price. But the start of a recovery in the SAR grounded those plans and made an international spinoff unfeasible.
According to the Australian, Ho approached Packer after the announcement and offered to buy some of Crown’s shares at a premium, achieving the same result as desired by Crown without the demerger.
Ho credited Packer as a major reason for the success of Melco Crown.
“He has been supportive to many of my decisions to realize the full potential of Melco Crown Entertainment in past years,” he said.
Packer is stepping down as co-chairman of Melco Crown, leaving Ho alone as chairman. The company will remove “Crown” from the corporate name within six months after the closing of the equity purchase. The Crown brand, meanwhile, will continue to appear on the Macau hotels and the two entities will continue to pursue opportunities in Japan together (see this week’s cover story).
Another casualty of the Crown retreat was the Alon casino development on the Las Vegas Strip. A partnership between Crown and former Wynn Resorts executive Andrew Pascal has been planned for more than two years, and would include 1,100 hotel rooms, a conservatory, a large water feature and nightclubs. The land is the site of the former New Frontier casino, directly across the Strip from Wynn and Encore Las Vegas.
Crown said it will now pull out of the project, but Pascal said Alon would not die and his team would pursue other investment partners.
“The challenge is purely the ambitious nature of the project,” Pascal told the Las Vegas Review Journal. “Crown was providing a substantial amount of reliant equity capital and now we have to go find somebody else. The project is still viable, it’s very compelling, it provides compelling returns and I would say in some cases, it might open up and create new opportunities where there were prospective investors that we talked to in the past that were potentially looking to come into the project but because they couldn’t come in in a more meaningful way, they elected not to.”
Pascal described Alon as “shovel ready” once a new partner is lined up.
