CWN Crown Resorts Limited

By Ese Erheriene and Mike Cherney 

Wynn Resorts Ltd. abruptly called-off discussions over a potential $7.1 billion offer for Australia's Crown Resorts Ltd. Tuesday, saying the takeover target had prematurely disclosed their talks.

Less than a day after Crown Resorts surprised industry watchers by announcing that Wynn Resorts had offered 14.75 Australian dollars (US$10.51) a share, Wynn took the deal off the table.

"Following the premature disclosure of preliminary discussions, Wynn Resorts has terminated all discussions with Crown Resorts concerning any transactions," the company said in a statement released four hours after a separate statement had confirmed the talks.

Wynn Resorts executives were caught off-guard when Crown revealed that they were in talks, as Wynn hadn't been ready to do so, a person familiar with the matter said. "I was surprised and the U.S. folks were surprised," the person said.

The deal would have given the Las Vegas giant a foothold in its second international market, underscoring how casinos are looking beyond the traditional gambling hub of Macau to attract lucrative Asian high rollers.

Wynn currently runs casinos only in the U.S. and Macau, the southern Chinese territory that is the epicenter of global gaming. Analysts said a move into the Australian market would have complemented Wynn Resorts' existing business, giving it another option to offer potential VIPs amid concerns that spending on gambling in Macau could fall due to a slowdown in the Chinese economy.

Macau casinos bring in more than five times the annual revenue of casinos in Las Vegas. The contribution from high-rollers to global gaming sits at around 50%, according to data from Union Gaming, an investment bank focused on the sector. That figure has trended lower since 2011, when VIP players accounted for roughly three-quarters of revenue.

Wynn's offer, which Crown disclosed Tuesday morning Sydney time, valued Crown at a 26% premium over Monday's closing price. Crown shares jumped about 20% on Tuesday, closing at A$14.05. Shares of Wynn Resorts slipped 3.9%, to $139.20, in early U.S. trading Tuesday, after the news that the deal was off.

Company founder Steve Wynn stepped down from Wynn Resorts following a Wall Street Journal investigation detailing sexual-misconduct allegations about him. An investigation by Massachusetts regulators revealed last week that company executives ran a sophisticated coverup to protect Mr. Wynn from the allegations.

David Green, a former casino executive turned founder of Newpage Consulting, said the Crown deal could have helped Wynn Resorts to expand regardless of the outcome of the regulatory proceedings in Massachusetts. The company planned to open a $2.6 billion resort there in June, but regulators are reviewing whether it is suitable to hold a license following the allegations against Mr. Wynn.

Killing the deal makes Wynn Resorts look silly, Mr. Green said. But after the decision by Massachusetts regulators is made, the company could revive it. "Prudence would suggest that you don't try and do a merger deal or acquisition when your suitability is being reviewed," Mr. Green said.

Public companies in Australia are under continuous disclosure obligations, Mr. Green said, meaning Crown would have had to disclose information that might affect the way the market trades its stock.

According to a guidance report on the topic by the Australian Securities Exchange, "once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately tell ASX that information." It isn't clear if that factored into Crown's decision or whether there are any exceptions for disclosures regarding merger talks.

For others in the market, though, Crown's actions were viewed as an attempt to attract other potential bidders to the table to create more of a market for the transaction, which backfired when Wynn Resorts pulled the plug.

"They were looking to do a transaction, not get involved in a bidding war," said Trip Miller, managing partner of Gullane Capital Partners. The firm manages around $70 million in assets, with roughly 18% invested in Wynn Resorts.

Before Crown's original deal talks announcement, its 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 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 had cheered the proposed deal. Before the company called off the talks, Gullane Capital's Mr. Miller said a move into Australia could serve as a stepping stone to Japan, which recently legalized casino gambling.

Despite the false start, 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, Buffalo, N.Y.-based Delaware North won regulatory approval to buy a casino in Darwin, in Australia's Northern Territory. And in February, The Wall Street Journal reported that billionaire shareholder activist Carl Icahn owned a stake in Caesars Entertainment Corp. and planned to push the casino operator to consider selling itself.

Write to Ese Erheriene at ese.erheriene@wsj.com and Mike Cherney at mike.cherney@wsj.com

(END) Dow Jones Newswires

April 09, 2019 12:41 ET (16:41 GMT)

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