Wynn's Pain Is Rivals' Gain With Macau Facing a Shakeup

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(Bloomberg Gadfly) -- Could there be a future where the only American big gun in Macau is Sheldon Adelson?

That might not be so far-fetched. Steve Wynn, battling allegations of sexual misconduct, has sold his remaining 8 million shares in Wynn Resorts Ltd., eliminating one of the last ties to the casino company he founded. Wynn Resorts then issued 5.3 million new shares to Galaxy Entertainment Group Ltd., giving it an estimated 5 percent stake.

Galaxy, helmed by Hong Kong tycoon Lui Che-woo, is one of six casino licence holders in Macau. Two are held by Wynn Resorts and Adelson's Las Vegas Sands Corp. , while the remaining three are all with members of the Ho family. There's SJM Holdings Ltd., owned by ailing octogenarian Stanley Ho; MGM China Holdings Ltd., run by his daughter Pansy; and Melco Resorts & Entertainment Ltd., managed by son Lawrence.

The licenses were bitterly contested when Stanley Ho lost his monopoly of more than 40 years in 2002 -- Macau, a special administrative region like Hong Kong, is the only place in China where casinos are legal. President Xi Jinping's 2014 crackdown on excessive spending scared off high rollers, but Macau is booming again, with casino revenue growth surging the most in four years in January.

Galaxy getting a chunk of Wynn Resorts could spell the start of consolidation in the former Portuguese enclave. My colleague David Fickling has suggested Malaysia's Genting Bhd. may even want a look in.

Both Galaxy and Wynn Resorts, which gets about 75 percent of its revenue from Macau, cater to high-end players, so it's possible Lui may push for a bigger stake.

Wynn Resorts could also do with the cash. According to Daiwa Securities Group Inc., it faces significant capital requirements resulting from legal settlement costs and expansion plans in Boston and Las Vegas. "To us, this provides a strong indicator Wynn Macau will likely raise its dividend," analysts led by Jamie Soo wrote in a note Thursday. Wynn Macau is a giant ATM, generating around $700 million of cash last year.

In addition, having lost its key man, Wynn Resorts is trading at a discount, and that could put it in play.

Some streamlining may be a good thing. Macau's six licences are set to expire between 2020 and 2022, so it's an opportune time for any operator to consolidate its position. There may be more permits doled out in future, and some could potentially go to mainland Chinese firms so far left out of the party.

Developers including China Evergrande Group and China Vanke Co., for example, are cash rich and keen to invest in tourism.

Wynn Resorts, unlikely to want to relinquish control, could net as much as $6 billion if it were to sell a 22 percent stake in Wynn Macau to Chinese investors, based on a 20 times forward EV-to-Ebitda multiple, according to Bloomberg Intelligence analysts Margaret Huang and Kristy Hung. Selling to a Chinese investor would also position Wynn more favorably with regulators in Beijing when its Macau casino license comes up for renewal.

Whichever way the chips fall, one thing is certain. Wynn's pain will be rivals' gain.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

  1. Wynn Resorts owns 72 percent of Wynn Macau Ltd., which has two resorts in the former Portuguese enclave.

  2. Las Vegas Sands controls 70 percent of Sands China Ltd.

©2018 Bloomberg L.P.

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