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COMMENTARY

Genting might hit jackpot buying Wynn Resorts

Sydney

GENTING chairman Lim Kok Thay has never quite got over losing out on a Macau casino licence. 

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.

The company would love to operate in Macau "but the door's closed," Mr Lim told Bloomberg News in a 2013 interview. "When it next opens, we would be the first one knocking on that door and try our luck."

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For the first time in years, the door is open a crack. After stepping down from the company he founded following allegations of sexual harassment, Las Vegas tycoon Steve Wynn is selling some or all of his 12 per cent stake in Wynn Resorts, which has its hands on one of Macau's six casino licenses via its Hong Kong-listed unit.

As Gadfly's Tara Lachapelle argued on Wednesday, that move - and Wynn Resorts' current valuation discount - ought to put the company in play as a takeover target.

DEARTH OF BUYERS

There's a dearth of plausible buyers. The rise of Macau has been so dramatic that all casino companies of comparable size already have a licence, and local authorities are likely to frown on a merger between two existing holders.

(Private equity players who are flush with cash are probably still put off by the disastrous billion 2006 takeover of Harrah's Entertainment, which left buyers led by Apollo Global Management and TPG Capital LP with almost nothing after years grinding through Chapter bankruptcy.

Caesars Entertainment, the business salvaged from the ruins of Harrah's, still has a debt load that's too heavy for it to consider acquisitions.

Australia's Crown Resorts, the other player that on paper might have the earnings and balance sheet for a tilt, has retreated from Macau in recent years after employees were jailed in China on charges of illegal gambling promotion. Its controlling shareholder James Packer quit the company's board due to mental health issues the company said on Wednesday.)

Genting - and particularly its Genting Singapore, which operates that city's Resorts World Sentosa casino - is an exception.

While Genting Singapore's market cap of S$13.4 billion falls well short of Wynn's US$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 and Sands China.

What would such a deal look like? If Genting Singapore were to offer Wynn Resorts a 20 per cent premium to its closing price on Tuesday, paid for one-third with cash and two-thirds with its own stock, it would be giving target shareholders 8.5 per cent more than the stock's highest price to date.

If it could squeeze out just US$110 million of annual synergies (equivalent to about 13 per cent of last year's combined selling, and general and administrative costs for the two companies), the deal would be accretive in the first year, according to Bloomberg's merger calculator.

The enlarged company would have substantial advantages. Wynn, which treated its founder's name and presence as a major asset until he became a liability, would gain the patronage of another global dealmaker with assets in the UK and New York alongside its core businesses in Malaysia, Singapore and the Philippines - and planned expansions on the Las Vegas Strip, in Miami and Japan.

Genting would be able 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.

Having properties on multiple continents is important for casino companies, which like to be able to offer their most lucrative high-rollers new destinations. 

To be sure, the businesses remain quite different. Genting targets a family audience in contrast to the gilded crowd favored by Wynn. Even in Singapore, where it takes as much of half its winnings from the same mostly Chinese, high-rolling VIP gamblers who throng Macau, licensing rules mean the junket operators who financially underpin the business in both cities are different.

STRUCTURAL ISSUES

There are also structural issues. Singaporean shares aren't likely to be a particularly attractive acquisition currency for US investors who'd end up with about two-fifths of the equity in the combined group.

A dual listing might ease that concern, and the Singapore exchange (always keen to draw high-profile names) would probably bend over backwards to help.

The bigger issue relates to control. Mr Lim has traditionally kept an iron grip on his empire by giving Genting at least half of every listed unit, but he'd be left with as little as 20 per cent of a combined Genting Singapore-Wynn Resorts. Enlisting satrapies such as Genting Malaysia might help, but would make a complex deal even more rickety.

Still, such a transformative undertaking might be worth the sweat and risk. Genting at present is a second-division player in the global casino industry, but a combined business could duke it out with MGM Resorts International and Las Vegas Sands at the top of the big league.

Relinquishing a little control might be a small price to pay. Gamblers who bet only when they have an unbeatable hand rarely end up taking the jackpot. BLOOMBERG

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