Kazuo Okada, the majority shareholder of Wynn Resorts Ltd., will ask a Nevada judge to block seizure of his nearly 20 percent share of the gaming company he co-founded with Steve Wynn.
Okada's Universal Entertainment Corp. said in a statement Tuesday that Wynn Resorts hasn't even provided a copy of the investigative report that led to the decision to eject Okada from the company's board and forcibly buy back his 24 million shares at about $800 million below their Friday market value.
"We believe the allegations leveled against Universal are motivated by self-interest and represent the results of an incomplete and otherwise flawed corporate governance process in breach of the board's fiduciary and other duties," the company said.
Universal Entertainment said it believes the entire process has been "tainted by the desire to serve Steve Wynn's predetermined goal of removing Aruze USA (Inc.) as the largest stockholder of the company."
Aruze USA, a Universal Entertainment subsidiary, is a slot machine manufacturer licensed in Nevada since 2004.
The long-simmering dispute between the two casino billionaires went public last month when Okada sued Wynn Resorts in Clark County District Court, seeking access to records associated with Wynn's $135 million pledge to the University of Macau Development Foundation, and use of other money Okada has invested in Wynn Resorts over the years.
Wynn Resorts attributes the dispute stems to Okada's decision to compete against Wynn's Macau property by building a $2 billion resort in Manila Bay.
The legal battle took a major turn over the weekend with Wynn Resorts filing its own state court lawsuit against Okada and announcing that an 18-month internal investigation conducted partly by former FBI Director Louis Freeh found that Okada's Universal Entertainment had made $110,000 in improper payments to gaming regulators in the Philippines.
Those gifts constitute a violation of the U.S. Foreign Corrupt Practices Act, which prohibits U.S. companies doing business overseas from bribing officials to gain a business advantage. While Okada is a citizen of Japan, any such actions by a major stockholder and director could jeopardize Wynn Resorts' domestic gaming licenses, Wynn Resorts determined in declaring Okada unsuitable for association with the company.
Wynn Resorts issued a 10-year promissory note for $1.9 billion to recapture Okada's shares, a 30 percent discount from their $2.7 billion value on Friday. The deep discount was determined by an independent financial adviser, Moelis & Co., which found that restrictions placed on the stock by a shareholder agreement reduced their value, Wynn Resorts said Tuesday.
While Okada's representatives said they plan to seek a temporary restraining order or injunction to block the forced stock conversion, a Wynn executive said it's too late -- the redemption occurred Saturday.
"The shares have been canceled," Kim Sinatra, senior vice president and general counsel for Wynn Resorts, told gaming industry analysts in a conference call early Tuesday. "So whatever action would be appropriate would probably not include (an) injunction because the actions have already occurred."
The lawsuit in Clark County District Court against Okada was made public on Tuesday, along with the 47-page Freeh Report. In it, Wynn Resorts seeks a court declaration that the company acted lawfully and in compliance with its articles of incorporation in redeeming Okada's shares.
Court papers confirm that Wynn Resorts considered investing with Okada in the Philippines. But the Wynn board deemed it too risky because "official corruption in the Philippine gaming industry is deeply ingrained," and because of doubts that newly elected president Benigno Aquino's "reform plans would eliminate corruption from the gaming industry."
Nevertheless, Universal Entertainment broke ground last month on the $2.3 billion Manila project, which includes two casinos and three hotels it expects to open in early 2013. Okada has said he plans to open more casinos in Asia in 2015.
Those plans fueled yet another allegation:
"To promote his own interests, Okada launched a campaign to misappropriate Wynn Resorts' assets and secrets for his and his affiliates' use," Wynn's attorneys wrote in their 20-page lawsuit. "Among other things, Okada arranged to have several people serve as interns at the Wynn Macau property so that Wynn Macau 'know-how' could be learned and siphoned from Wynn Resorts."
Both sides are due back in District Court on Thursday. Judge Elizabeth Gonzalez has scheduled a hearing to rule on Okada's request for Wynn Resorts documents related to the company's business in Macau. Wynn Resorts' new lawsuit has also been assigned to Gonzalez.
Shares of Wynn Resorts gained $6.71, or 5.95 percent, Tuesday to close at $119.40 on heavy volume of 8.34 million shares traded on the Nasdaq Global Select Market. Wynn Resorts averaged 2.51 million shares traded daily over the last 30 days.
Sterne Agee analyst David Bain said Wynn Resorts may have won an initial round by redeeming 20 percent of its stock. But, he added, "In our view, this marks the beginning of what is now a foreseeable, longer-term showdown between two parties, likely leading to additional bruising on both sides."
Wynn Resorts Chief Financial Officer Matt Maddox said the $1.9 billion in new debt issued to redeem Okada's shares would boost the company's debt level to $4.5 billion, up from $2.6 billion on Dec. 31. Total company debt jumps to $5.1 billion from $3.2 billion.
In research reports issued Tuesday, Deutsche Bank analysts Carlo Santarelli and Andrew Zarnett asked how comfortable gaming regulators will be with Wynn Resorts' $1.9 billion debt to Okada. They also asked whether the shareholder agreement between Wynn and his former wife and current board member Elaine Wynn continue, restricting the Wynns' rights to sell shares.
"Many questions remain," Zarnett said.
Contact reporter Chris Sieroty at email@example.com or 702-477-3893.