Wynn Resorts has called off talks aimed at acquiring Australian casino giant Crown Resorts.
The discussions ended almost as soon as they began when work leaked to Australian media that James Packer had put Crown in play and that Las Vegas-based Wynn was the prospective suitor.
News of the talks, initially contained in a filing with the Australian Stock Exchange, had it that Wynn had made an offer with an implied value of $10.50 (A$14.75) per share, half in cash and half in Wynn stock, a deal that valued Crown at around $7.83 billion (A$10 billion) and would have made James Packer, Crown’s largest shareholder, Wynn’s largest shareholder with 9.8 percent.
A later Wynn Resorts filing with the U.S. Securities & Exchange Commission confirmed the talks but stressed that the deal was not definite.
The combined effect, however, was to boost Crown’s stock by 20 percent, juicing the company’s valuation to $9.5 billion from $7.9 billion the day before, and Wynn immediately retreated, issuing a statement that said, “Following the premature disclosure of preliminary discussions, Wynn Resorts has terminated all discussions with Crown Resorts concerning any transaction.”
Wynn’s shares dipped 3 percent following the announcement, but analysts weren’t concerned. As David Bain of Roth Capital Partners put it, “Wynn management’s experience with acquisitions is limited, so when you target synergies it’ll be nice to have more of a track record for such a large transaction.”
The proposed deal was seen as a potential hedge against Wynn’s two casino operations in Macau, the source of nearly 75 percent of its corporate revenues and where its initial 20-year gaming concession is up for renewal in 2022. The company also is vying for development rights in Japan, where the world’s largest gaming operators have converged in an intensely competitive bidding war for the country’s first casino licenses.
“We think Wynn’s strategy was mostly defensive, but if they have a strong strategic rationale for wanting to acquire Crown, they would likely come back to the table when things settle down,” said John DeCree, Union Gaming Securities’ director of North America research.
Publicly traded Crown (ASX: CWN), Australia’s largest gaming operator with resorts in Melbourne and Perth, a megaresort under development on Sydney’s Darling Harbour, a half interest in a London casino and interests in various online betting enterprises in Australia, had a market cap at one point last year of A$8.7 billion.
The company was founded as the gaming arm of an Australian media empire run by the celebrated Kerry Packer, who was the country’s richest individual when he died in 2005, leaving the bulk of his holdings to his son, James.
With the help of his father’s connections, James Packer was able to steer Crown into Macau as a partner with Hong Kong-based Melco, run by Lawrence Ho, the son of Macau casino tycoon Stanley Ho. Their resulting twin casino joint venture in the Chinese gambling enclave proved to be Crown’s most profitable business.
But the company suffered from James’ determination to expand into Las Vegas, which resulted in several ill-fated investments that cost hundreds of millions of dollars. Plans to build a megaresort in Sri Lanka also came to nothing. The big blow, however, came in 2016 when 19 employees were arrested in China on charges of illegally promoting gambling. A court jailed 16 of them, including three Australian citizens, for nine to 10 months, while the remaining three were released after a month in detention.
The arrests prompted the departure of much of Crown’s experienced upper management, and the following year, Packer sold the company’s 50 percent stake in Melco Crown Entertainment in Macau. In 2018, he resigned as chairman, citing mental health issues, and removed himself from any governance role in Consolidated Press Holdings, the media conglomerate he inherited from his father. He is now a self-described recluse who no longer lives in his native country and rarely visits it. He still owns close to 47 percent of CWN, which has seen its value plummet 20 percent as profits have missed expectations following the virtual disappearance after 2016 of its core market of high rollers from China.
Wynn Resorts has been weathering its own problems. A bombshell January 2018 report in The Wall Street Journal sparked investigations in Nevada and Massachusetts into allegations that for years founder Steve Wynn had routinely pressured female employees for sexual favors. It’s reputed also that his alleged misconduct, which in one instance led to a $7.5 million off-the books settlement with a former manicurist who said he raped and impregnated her, was known to member of upper management, who conspired to cover it up. Wynn denied the accusations but resigned as chairman and CEO shortly after the Journal article appeared. He later sold his interest in the company. Several top executives followed him out the door, and nearly the entire board of directors has been replaced.
Nevada regulators recently closed their investigation with a decision to fine the company $20 million. The Massachusetts probe is ongoing (See USA), with a $2.6 billion Wynn casino hotel under development outside Boston hanging in the balance.
