RHB Research. The research house pointed out that there could be potential relaxation of visa requirements that would boost visitor arrivals to Resorts World Genting (RWG).
KUALA LUMPUR: Macau casino operator Galaxy Entertainment has beaten Genting Bhd
to take up a stake in Wynn Resorts Ltd following the exit of former chief executive Steve Wynn.
Galaxy Entertainment agreed to buy 5.3 million primary shares of Wynn Resorts at US$175 per share, giving them around a 5% stake in the operator which has resorts in Las Vegas and Macau, according to Reuters.
The 5% block was part of the 11.8% which Wynn had disposed of for US$2.1bil in the casino and hotel enterprise he founded over 16 years ago. He has also disposed of the remaining stake.
Galaxy is one of six licensed operators in the world's largest gambling hub of Macau and competes with Wynn along with Sands China, MGM China and Melco Resorts.
Genting was reported to have been in keen on operating in Macau.
However, the Malaysian gambling and resorts group failed to win a permit when the territory opened its casino market in 2002, and an attempt to set up a venture with gaming mogul Stanley Ho went nowhere, according to Bloomberg.
Boomberg reported that all casino companies of comparable size already have a license, and local authorities are likely to frown on a merger between two existing holders.
However, it noted that Genting -- and particularly its Genting Singapore Plc, which operates that city's Resorts World Sentosa casino -- is an exception.
While Genting Singapore's market cap of S$13.4 billion ($10.2 billion) falls well short of Wynn's $18 billion, it has S$2.6 billion in net cash and racked up free cash flows of S$1.15 billion during 2017 -- a figure exceeded only by Wynn Resorts itself and Sheldon Adelson's Las Vegas Sands Corp. and Sands China Ltd.
If Genting could buy a stake in Wynn Resorts, that would enable it to add Wynn's high-end glitz and substantial cash flows to its own more mass-market charms in the competitive bidding for a Japanese integrated resort license, too.
Meanwhile, JP Morgan Asia Pacific Research pointed out that Galaxy could’ve potentially bought much more if it wanted (it has US$4bil net cash) and taken meaningful control, but over 5.0% ownership would’ve also triggered the suitability test for Wynn’s US gaming licence (e.g., Massachusetts).
“In our view, the fact that Galaxy didn’t want to cross 5% line indicates this is more of a strategic investment, and not an attempt to take-over or control the company. We don’t expect Galaxy to further increase stake in Wynn for the foreseeable future,” it said.
JP Morgan Research said though the investment itself is largely cash-return neutral, the transaction price of US$175 seemed reasonably attractive at 15 times FY18E enterprise value/earnings before interest, tax, depreciation and amortisation (EV/EBITDA), compared to its price target of US$196 and last closing price of $175.5.
“Moreover, we believe a tie-up between the Macau’s two best high-end – VIP and premium-mass – operators could produce some synergy in the long-term via potential operational partnership (such as, cross-checking credit information on high-rollers or junkets, direct shuttle connection, sharing know-hows on data analytics, etc.), though it’s difficult to expect any immediate benefits.
The research house said the impact on Wynn Macau was also positive, as this reduces some uncertainties, in addition to potential long-term synergy.
First, this effectively removes (remote) the possibility of someone taking over control of Wynn and jeopardising the operation, and its professional management team is likely to stay intact given more stable shareholding structure now.
Second, the allegations around Wynn can no longer pose any threat to the gaming licence in Macau.
Third, now that Wynn has a backing from Galaxy, arguably the most prominent “local operator” that has great relationship with governments, one could argue that the market’s perceived risk on its licence renewal should be reduced.
To recap, Steve Wynn resigned as CEO of the Las Vegas-based company last month, following claims he subjected women who worked for him to unwanted advances. He has denied the accusations.
Reuters pointed out that Wynn, who started in Las Vegas casinos in the 1960s, created some of Las Vegas' most iconic landmarks – the Mirage, Bellagio and Treasure Island.
He was forced to sell his multi-billion dollar operation Mirage Resorts to tycoon Kirk Kerkorian in a hostile takeover in 2000. Kerkorian then created MGM Mirage and Wynn went on to create Wynn Resorts with his ex-wife in 2002.
The 76 year old businessman, whose signature denotes the company's logo, had built two lavish resorts in the former Portuguese colony of Macau where only six firms have licenses to operate casinos.
Vitaly Umansky, analyst at Sanford C. Bernstein in Hong Kong, said the implications of the Galaxy's investment goes beyond what looks like a passive move at this stage.
"Wynn and Galaxy may be looking at collaborating on future development opportunities in Asia, with Japan being the critical development initiative," according to Reuters.
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