Wynn Resorts Pulls $7.1 Billion Crown Buyout Offer
Wynn Resorts Ltd. took its $7.1 billion takeover offer for Crown Resorts off the table today. Wynn’s leaders claimed Crown prematurely disclosed their buyout talks, according to the Wall Street Journal. Australian newspapers disclosed the major casino deal earlier in the week.
Australian Financial Review broke the news on late Monday evening. The talks suprised the gaming community, because a Wynn-Crown buyout was the biggest financial story in Australian gambling this year.
Crown Resorts is the largest land-based casino company in Australia. It owns Crown Melbourne, the country’s largest casino, and Crown Perth, a mainstay in Western Australia. Also, the company continues to build Crown Sydney, a VIP casino in New South Wales.
Wynn Resorts owns the Wynn Las Vegas and Encore Las Vegas on the Vegas Strip. It also owns the Wynn Macau and Wynn Palace on the Cotai Strip in Macau. Also, the company plans a grand opening of Encore Boston Harbor in June.
Buyout Talks Caused Share Prices to Rise
Wynn’s decision to pull its offer shows the danger of leaks in the corporate world. When it made the offer, the $14.75 per share sale price was a 26% premium for shareholders.
As soon as the deal became known, investors bought Crown shares, taking the price to $14.37, almost to the sale price. Wynn Resorts’ offer no longer looked so good. Crown Resorts board members would be emboldened to ask for more in the negotiations.
Wynn Execs Suspected Leaks by Crown
The decision to pull the offer came from an underlying suspicion by Wynn executives that Crowns leaked the buyout talks to drive up prices. The fact Australian news sources received the scoop added to those suspicions.
In such circumstances, information breaking in the media can poison the talks.
David Bain on Buyout Talks
David Bain of Roth Capital Partners said the Wynn board’s inexperience at major acquisitions makes it hard to predict success in a buyout. Bain added, “(Wynn) management’s experience with acquisitions is limited, so when you target synergies it’ll be nice to have more of a track record for such a large transaction.”
The deal had appeal on both sides. Wynn Resorts’ Macau holdings are tremendously profitable, but they hold uncertainty because of a 2022 review for their casino licenses. Nothing can be certain when the arbitrary power of Chinese officials.
For that reason, adding a successful Australian casino company diversifies Wynn’s risk.
Why a Buyout Could Help Crown
Crown Resorts could use the infusion of foreign capital and know-how. Five years ago, Crown was riding high on the Macau casino industry, too. In mid-2014, President Xi Jinping’s corruption crackdown hit Macau. VIP high rollers stopped taking Macau junkets and casino operator’s share prices dropped 40% to 50%.
Eventually, Crown sold its 33% share in Melco Resorts and Entertainment. By that time, Chinese police had arrested 18 Crown employees for gambling law violations. The Australian company’s bought its employees’ freedom for $1.5 million and a promise to leave China’s gaming industry.
Crown Resorts’ Near-Term Future
Since then, Crown focused on the Australian market, but that is a double-edged sword. Australians spend more per capita on gambling than any nation on Earth, but the market is saturated. Also, the high expenditures mean Aussie voters sometimes demand new controls on Australian gaming companies.
Meanwhile, Crown Sydney exists to draw Asian high rollers — a term that usually means Chinese VIPs. If Crown cannot advertise much in China, and Chinese high rollers are spending less in Australia anyway, it could mean trouble for Crown Sydney.
In those circumstances, a buyout by a cash-rich American casino company sounds good. Crown Resorts gets an influx at a time it could use diversification itself. And considering James Packer’s troubles, fresh new leadership could make a world of difference.
James Packer’s Role in Crown’s Future
On the Crown side, its top shareholder, James Packer (47% ownership), appears willing to leave the casino industry. James Packer has been a flamboyant and energetic personality in the Australian gambling industry. Once the country’s richest man at $7 billion, Packers has been romantically linked to models, actresses, and pop divas. Packers partied with the Hollywood elite, while making friends with Israeli Prime Minister Benjamin Netanyahu.
Yet twice in the past several years, James Packer stepped down from his executive position in Crown Resorts. The first time, the billionaire simply wanted to enjoy life with his then-fiance Mariah Carey. He returned to take a leadership role when Crown Resorts employees were detained by the Chinese government. Packer negotiated the release of the workers, paid a $1.5 million fine, and sold Crown stock in Melco Resorts & Entertainment. He charted a new course for the company that meant re-focus on the Australian gaming market. Packer even took personal oversight of the Crown Sydney development.
A little of a year later, James Packer left the board again for mental health reasons. He moved to Boston, then Argentina, then Cabo San Lucas, and then Los Angeles, but has not shown a great deal of inclination to take control of his company again. The most prominent James Packer news recently was about his $200 million yacht being completed after four years in an Italian shipyard. While he is young enough to make a Gladstone-like return from retirement once more, certain signs point to Packer wanting to sell his company — or at least willing to listen to offers.