Elaine Wynn has launched a campaign urging Wynn Resorts shareholders to reject long-time director John J. Hagenbuch for re-election to the board.
Undeterred by a recent rebuff from the board of her request to reopen nominations for directorships, Wynn’s largest shareholder is using the company’s annual meeting next month to challenge what she sees as the same entrenched “clubbiness” that allowed repeated complaints of sexual harassment by her ex-husband Steve Wynn to go ignored.
Wynn resigned as chairman and CEO in February in the wake of media reports detailing sexual misconduct allegations leveled by dozens of women who worked for the Las Vegas-based gaming giant. At least two women had been paid private cash settlements.
Wynn has since sold his financial interest in the company.
Elaine Wynn, a co-founder of the company with her then-husband, was ousted from the board in 2015 for suing to nullify a 2010 divorce settlement that gave Steve Wynn effective control of her 9.25 percent shareholding and pointing out other alleged corporate malpractices, including the sexual harassment settlements.
In a “Withhold the Vote” campaign framed in an April 23 letter to shareholders she questions the independence of Chairman D. Boone Wayson, like Hagenbuch a close friend of Steve Wynn’s, and takes aim at a $24 million pay package recently approved for new CEO Matt Maddox.
“My opposition to Mr. Hagenbuch’s re-election serves as a referendum on all of the longstanding legacy directors, including those who are not up for re-election, because the incumbent directors refuse to declassify the board,” the letter says. “A withhold vote with respect to Mr. Hagenbuch is a first step towards a ‘New Wynn.’”
She says Hagenbuch’s appointment to a special committee of the board investigating the allegations against Steve Wynn as a conflict of interest.
She also questions his lengthy record as a member of the board’s the compensation committee.
“He was on the compensation committee when Mr. Wynn’s pay was called into question in 2015,” she said. “The company did not hold a say-on-pay vote in 2015 or 2016 and at last year’s annual meeting, the say-on-pay proposal received only 59 percent support. This puts the company in the lowest 10 percent of Russell 3000 companies holding say-on-pay votes in 2017.
As for Maddox, the letter blasts his new pay package as “exorbitant for a first-time untested public company CEO” and “demonstrates that very little has changed.”
“If you are concerned about the company’s governance practices, I urge you to withhold your vote from Mr. Hagenbuch at this year’s annual meeting,” it states.
Wayson has replied that the board does not believe that reopening nominations for new directors is “appropriate or justified.”
Soon afterwards, the company expanded its board to 11 seats with the addition of three independent directors: businesswomen Dee Dee Myers, Wendy Webb and Betsy Atkins. Maddox termed them “a turning point for us.”
“I look forward to working with each of our new directors as we usher in a new era at Wynn,” Maddox said.
In a statement filed with the SEC, the board said, “The company is continuing the positive momentum that has accompanied its recent initiatives and is focused on the future. The board is working in an orderly fashion to refresh its composition, with three new experienced and distinguished directors being named last week. The board intends to continue its work.”
Wynn First Quarter Report Impressive
Wynn Resorts capped the most turbulent three months in its history of any major publicly traded casino company with robust returns from its properties in Macau and Las Vegas.
Boosted mainly by an outsized Macau performance, corporate-wide EBITDA for the quarter ended March 31 came in at $564.3 million, up 32 percent year on year, on a 21.1 percent increase in revenue to $1.72 billion.
One-time expenses resulted in a net loss of $204.3 million, or $1.99 per diluted share, compared to a profit of $100.8 million in Q1 2017, but excluding these, adjusted net income was $237 million, or $2.30 per diluted share, topping the $1.95 forecast of analysts polled by Yahoo Finance.
The charges were tied to a resolution last month of a six-year court battle with Aruze USA and its parent, Universal Entertainment of Japan, over Wynn’s forced redemption back in 2012 of Aruze’s sizable shareholding. Wynn took a quarterly charge of $463.6 million in litigation costs, plus $69.3 million in related expenses, in connection with the $2.4 billion settlement.
Long-time Wynn executive Maddox, who succeeded Steve Wynn as CEO in February, said on a call with analysts the company was “no longer mired in litigation” and said the settlements were “great deals” for the company and shareholders.
Highlights for the quarter included a 50 percent dividend increase to 75 cents a share, payable May 29.
Maddox said he’s focused on moving Wynn Resorts past the turmoil that erupted earlier this year when Steve Wynn was hit with a barrage of sexual harassment accusations from women formerly employed by Wynn Resorts and its predecessors in Las Vegas. The resulting firestorm forced him to quit as chairman and CEO. He was bought out for $34.5 million and has since sold his stock, severing all ties with the company he founded.
“As the CEO, I’m not interested in looking in the rear-view mirror,” Maddox said on the call.
Financial discipline will be a watchword of this new forward-looking approach, he said. This will include scaling back the $3 billion Paradise Park project on the Las Vegas Strip that Wynn initiated and a re-examination of Wynn’s plans for a luxury hotel on the former New Frontier site the company bought in December, across the Strip from its Wynn Las Vegas and Encore resort complex. Maddox called the pursuit of both projects at the same time “unsustainable.”
He said the company is pushing ahead with its $2.5 billion resort casino outside Boston, but that that, too, will be submitted to a “hard look” if it appears the “contagion” from the Wynn scandal may hurt the company in other markets.
Wynn and Wynn Resorts are under investigation by the Massachusetts Gaming Commission in connection with allegations concerning Wynn.
Maddox also made it a point on the call to emphasize that the controversy hasn’t hurt the company’s core operations.
“I think what is important is that we see no degradation of business. What we are feeling and seeing in Las Vegas is continued strength.”
Las Vegas operations beat consensus forecasts with EBITDA of $142.6M on total revenues of $431.5.
But the hero of the quarter was Wynn Macau, the company’s Hong Kong-traded subsidiary.
Wynn Macau’s two Macau resorts, Wynn Palace and Wynn Macau, posted combined EBITDA of US$421.7 million on total revenues of $1.28 billion, 27.8 percent increase year on year and accounting for 74 percent of all revenues corporate-wide. Net profit more than doubled to $227.1 million.
Maddox said the company will invest $100 million to revamp Wynn Macau on the Macau peninsula, which will include “reinvigorating” the original casino at the property’s first tower, and “taking out a lot of the exterior junket space that is not productive.” A remodeling of the rooms at the sister tower, Encore, also is planned.
He added that the company will be “spending more time and more resources” in securing one of the three coveted integrated resort licenses the Japanese government is expected to issue, possible in partnership with Macau’s Galaxy Entertainment, the casino giant that recently spent $900 million for a 4.9 percent stake in Wynn Resorts.
He hinted the two could also “potentially work together” in assessing business opportunities in other markets as well.
In all, analysts were impressed.
Investment bank Jefferies said, “The approximately in-line results are perhaps less important for the shares than the forward-looking commentary. We believe the quarter offered little reason to change our positive stance on the greater market value of the assets over the strong operations.”
Las Vegas-based investment brokerage Union Gaming said, “While it might seem like the new management team is changing the direction of Wynn a little bit, we actually think they are steering the company back to its core competency.”
“While we continue to believe the ‘Steve Wynn stock multiple premium’ will be lost for at least some time,” noted Roth Capital Partners, “fundamental underpinnings are too strong for shares to not retrace closer to historical stock multiple averages in the near-to-intermediate term.”
