Casino investor and operator Melco Resorts and Entertainment Ltd has announced it is dropping a plan to acquire a further nearly 10-percent stake in Australian casino operator Crown Resorts Ltd. Melco Resorts said in a Thursday press release it had decided to shelve the plan because of the “impact of the coronavirus epidemic” and the need to use its capital on the firm’s “core assets”.
“Due to the impact of the coronavirus epidemic, including the severe drop in tourism in Asia to integrated resort (IR) facilities in the region, and the recent decision by the Macau SAR government to close all casinos in Macau, Melco has taken the decision to reassess all non-core investments to be made in 2020,” said the casino operator in a written announcement.
In an effort to prevent the spread of the novel coronavirus locally, the Macau government announced that the city’s casinos would be closing for at least 15 days, starting from February 5. Commentary from several brokerages has suggested that Macau’s casino gross gaming revenue might fall by about 50 percent year-on-year in the first quarter.
Melco Resorts stated on Thursday that it would “not pursue its planned investment in Australia for the second tranche of shares” in Crown Resorts. “While Melco believes Crown has world-class assets that are complementary to its global business, it is Melco’s belief that, at this time, its capital needs to be deployed on its core assets,” it added.
The announcement from Melco Resorts was made on the same day as the Supreme Court in New South Wales, Australia, began looking into a legal challenge filed by Melco Resorts regarding an inquiry into the share deal by that state’s gaming regulator, the Independent Liquor and Gaming Authority (ILGA). The company argued that the ILGA was exceeding its powers via the probe, on the basis that the inquiry had ordered Melco Resorts to produce documents that the firm claims are privileged.
Melco Resorts, a company controlled by gaming entrepreneur Lawrence Ho Yau Lung (pictured in a file photo), announced in May last year that it was paying US$1.2 billion to acquire a 19.99-percent stake in Crown Resorts, in two tranches. CPH Crown Holdings Pty Ltd – controlled by Australian businessman James Packer – was at the time identified as the seller. Melco Resorts also had said that it would seek representation on Crown Resorts’ board.
No board representation
In Thursday’s statement, Melco Resorts said the company and CPH Crown Holdings had “agreed to terminate the obligation” to purchase the second tranche of Crown Resorts shares.
“Melco does not currently intend to increase its existing shareholding in Crown from its current position. Melco also does not intend to seek representation on Crown’s board,” stated Melco Resorts.
Under the original agreement, the transaction for the first tranche of 67,675,000 shares – equivalent to a nearly 10-percent stake – of Crown Resorts was completed on June 6. The sale of the second tranche was scheduled to occur on or prior to September 30 last year, but the involved parties announced in August the deferral of the acquisition.
Melco Resorts said in an August announcement that the parties had decided to postpone the acquisition of the second tranche of Crown Resorts shares “to allow more time” for the New South Wales gaming regulator to complete a probe into the deal.
In a Thursday note, brokerage Sanford C. Bernstein Ltd said that while it “originally viewed” the share acquisition as “a first step” in Melco Resorts fully acquiring Crown Resorts in the future, the transaction “has been bogged down with regulatory scrutiny of Crown’s VIP business practices and probity of Melco”.
“We believe Melco will likely look to divest its holdings over time as the market allows,” said the institution’s analysts. “With what is happening in Asia now with the coronavirus and with Melco seemingly fully engaged on Japan, any further acquisition of Crown would have likely been a bigger bite than Melco could reasonably handle.”
On Thursday, Melco Resorts said it considered its core operations “to be those businesses where it is the managing and majority shareholder”. This, it added, includes its operations in Macau, the Philippines, and Cyprus, and its “efforts to obtain a licence to operate a Melco-owned IR in Japan”.
“Melco intends to continue its operations in these jurisdictions and carry out key investments currently earmarked for Macau, Manila, Cyprus, and Japan, including the construction of Studio City phase 2 [in Macau] and City of Dreams Mediterranean [in Cyprus],” said the firm.
Melco Resorts said additionally that its management’s attention would “remain focused on these critical areas of Melco’s business until such time as operations and business throughout Asia have returned to normal”.
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”Galaxy Entertainment Group will resume limited operation of its casinos and VIP rooms from midnight on February 20, and will gradually resume full service based on guest demand”
Senior vice president of public relations at Macau casino operator Galaxy Entertainment Group