Wynn regulatory hurdles remain after settlement: analysts

Mar 12, 2018 Newsdesk Latest News, Rest of Asia, Top of the deck  

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Several analysts say the settlement reached on Thursday between casino group Wynn Resorts Ltd and Aruze USA Inc, over a stock redemption dispute, has freed the former from major “overhang” on its future, but other risks, including regulatory hurdles, remain.

John DeCree, an analyst at brokerage Union Gaming Securities LLC, wrote in a Friday note that the US$2.4 billion-settlement “is favourable for [Wynn Resorts] given the array of possible negative outcomes, including the worst case of potentially having to reinstate [Universal Entertainment]‘s shares (worth approximately US$3.7 billion today) and reimburse the company hundreds of millions of dollars in foregone dividends if the court invalidated the share redemption”.

While Mr DeCree said that the financial impact of the settlement was “notable” due to the incremental interest expense incurred following the deal, he remarked that Wynn Resorts did have “over US$2 billion of cash on the balance sheet, some of which could be used to fund the settlement to help limit some of the interest increase”.

Wynn Resorts said in a Friday filing it had agreed a one-year maturity, US$800-million, loan with Deutsche Bank AG to help to pay for the settlement with Aruze USA. The latter firm is a subsidiary of Japanese conglomerate Universal Entertainment Corp, which was founded by gaming entrepreneur Kazuo Okada.

Union Gaming noted that “gaming regulatory overhang still exists”, with the gaming regulator in Massachusetts and the equivalent authority in Nevada respectively carrying out investigations into allegations of sexual misconduct made against Steve Wynn, the founder of Wynn Resorts.

Matt Maddox, installed as Wynn Resorts’ chief executive after the resignation of Mr Wynn last month, said in an interview broadcast on Friday on business news channel CNBC, that he had no knowledge of the allegations against Mr Wynn prior to them becoming public.

Union Gaming’s Mr DeCree said in his Friday memo to investors: “Our most notable regulatory concern relates to how Wynn Resorts might be viewed in Macau, with the concession renewals around the corner.”

Wynn Resorts is the parent company of Macau-based casino operator Wynn Macau Ltd. The latter promotes in that market the casino resorts Wynn Macau and Wynn Palace. Wynn Macau’s existing Macau gaming rights are set to expire in 2022.

Meanwhile, Harry Curtis, Daniel Adam and Brian Dobson at Japanese brokerage Nomura said that the Wynn Resorts’ deal with Aruze USA “[removed] an important hurdle for any mergers and acquisitions transaction”.

“Issues that remain unresolved are claims between [Elaine Wynn] and Steve Wynn, as well as the Shareholder Agreement. If the Shareholder Agreement is resolved, then Elaine and Steve Wynn would have to register their shares,” the Nomura analysts said in a Friday note.

Elain Wynn is the ex-wife of Steve Wynn. The two parties are in legal dispute over the termination of a shareholder’s agreement, which prevented Mr Wynn, his ex-wife and Mr Okada from selling their respective shares in Wynn Resorts without the consent of the other two shareholders.

Wynn Resorts’ Mr Maddox told CNBC in the interview aired on Friday as saying the firm had not received any offers from other parties seeking to buy Wynn Resorts.

“As a CEO, I have fiduciary duty to entertain anything. But what I can tell you is we’re not for sale. There’s been talks about breaking the company up: that also makes no sense,” Mr Maddox said.

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