By Mike Cherney in Sydney and Ese Erheriene in Hong Kong
Wynn Resorts Ltd.'s $7.1 billion offer for Australia's Crown
Resorts Ltd. would give the Las Vegas giant a foothold in more
international markets, underscoring casino operators' efforts to
expand beyond the traditional gambling hub of Macau to attract
Asia's lucrative high-rollers.
Wynn currently runs casinos only in the U.S. and Macau, the
semiautonomous Chinese city that is the epicenter of the global
gambling industry. Analysts said entering the Australian market
would complement Wynn's existing business, offering another option
for the company's VIP customers as concerns persist that gambling
spending in Macau could fall owing to a Chinese economic
slowdown.
Macau casinos generate more than five times the annual revenue
of those in Las Vegas. The contribution from high-rollers to global
gambling sits at around 50%, according to data from Union Gaming,
an investment bank focused on the gambling sector. That figure has
trended lower since 2011, when VIP players accounted for roughly
three-quarters of revenue.
A tie-up with Crown would give Wynn properties in Melbourne,
Perth and London, plus a waterfront casino and hotel under
development in Sydney that will cater to VIPs. Crown's properties
offer high-quality, stable cash flows and, in Melbourne and Perth,
have the added benefit of being a regulated monopoly, said Graeme
Ferguson, an analyst at S&P Global Ratings.
"It's not surprising to see consolidation being considered by
major players," Mr. Ferguson said. "Mergers have been happening in
the past few years driven by slow growth and limited new
development opportunities."
Wynn's offer, disclosed Tuesday morning Sydney time, values
Crown at 14.75 Australian dollars (US$10.51) a share, a 26% premium
over Monday's closing price. Crown shareholders would receive 50%
of that amount in cash and 50% in Wynn shares. Discussions are at a
preliminary stage and there is no certainty a deal will be reached,
Crown said.
Crown shares jumped about 20% on Tuesday, closing at
A$14.05.
Wynn confirmed in a regulatory filing that it is in preliminary
discussions with Crown.
Wynn Resorts executives were surprised Crown had revealed that
they were in talks, as Wynn hadn't been ready to do so, said a
person familiar with the matter at subsidiary Wynn Macau.
Company founder Steve Wynn stepped down from Wynn Resorts last
year after a Wall Street Journal investigation detailing
sexual-misconduct allegations about him. An investigation by
Massachusetts regulators revealed last week that Wynn executives
ran a sophisticated coverup to protect Mr. Wynn from the
allegations. Mr. Wynn has said the idea that he ever assaulted a
woman was preposterous.
David Green, a former casino executive turned founder of Newpage
Consulting, said a Crown deal would ensure Wynn is able to expand
regardless of the outcome of regulatory proceedings in
Massachusetts. Wynn plans to open a $2.6 billion resort there in
June, but regulators are reviewing whether it is still suitable for
the company to hold a license following the allegations against Mr.
Wynn.
"Wynn are hedging their bets," Mr. Green said. The Crown deal
would help the company "get a set of assets for not a huge
premium."
China has been at the center of a broader boom in Australian
tourism, which has also benefited casinos. Last year, China
overtook New Zealand to become Australia's largest source of
visitors, according to official data. Tourism Research Australia
expects 11.9% annual growth in Chinese visitors over the next 10
years.
A deal for Crown, if it advances, still holds risks. Before
Tuesday's announcement, Crown shares were down about 20% from their
recent highs, reflecting concerns about main-floor gambling
revenue, the company's efforts to rebuild its VIP business after
employees in China were arrested and sentenced for gambling-related
crimes, and the progress of the new developments in Australia.
In February, Crown Chief Financial Officer Kenneth Barton told
investors on a conference call that high-end visitors to the
company's Melbourne property were being cautious about spending.
Overall, Crown said high-roller spending fell 12% in the six months
ended in December.
"The people at the premium end have been still coming to the
property in broadly the same numbers but spending less," Mr. Barton
said, according to a transcript. "We've seen that also with our VIP
customers at the top end as well. And anecdotally, we've seen
casual restaurants do better than premium restaurants."
Still, some Wynn shareholders cheered the proposed deal. Trip
Miller, managing partner of Gullane Capital Partners, which has 18%
of its $70 million in assets invested in Wynn, said a move into
Australia could serve as a steppingstone to Japan, which recently
legalized casino gambling.
"Crown has a lot of cash and a pretty solid balance sheet and
that would serve Wynn pretty well as they continue to grow," Mr.
Miller said.
Crown's largest shareholder is an investment firm tied to
billionaire James Packer that has a roughly 47% stake. In recent
years, Mr. Packer has debated spinning off parts of the company or
taking it private. Following the arrests of Crown's employees in
China, the company sold off many of its overseas assets to focus on
its Australian operations.
As the threat from online gambling has grown, some casino
companies have shifted focus to travel destinations that are less
reliant on gambling. Crown's Australian rival, Star Entertainment
Group Ltd., is helping to build a casino and resort complex in
Brisbane, which is about a 90-minute flight from Sydney.
Some bankers have said the casino industry is ripe for
deal-making as casinos look to diversify their offerings, improve
margins and lower costs. Just last month Delaware North Cos., based
in Buffalo, N.Y., won regulatory approval to buy a casino in
Darwin, in Australia's Northern Territory. And in February, The
Wall Street Journal reported that billionaire activist investor
Carl Icahn owned a stake in Caesars Entertainment Corp. and planned
to push the casino operator to consider selling itself.
Write to Mike Cherney at mike.cherney@wsj.com and Ese Erheriene
at ese.erheriene@wsj.com
(END) Dow Jones Newswires
April 09, 2019 09:13 ET (13:13 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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