Wynn Resorts Ltd. said Sunday it has deemed Kazuo Okada, a former close business associate of Steve Wynn, as "unsuitable" based on an internal investigation and has forcibly bought his shares in the company at a steep discount.
Wynn Resorts of Las Vegas will pay Okada $1.9 billion over 10 years for his 20 percent stake in the gaming company, held by Okada's company Aruze USA Inc. Okada's stake is worth an estimated $2.77 billion.
Okada's 24 million shares were redeemed for a 30 percent discount, which the company called "fair value." The company issued a $1.9 billion promissory note maturing in 2022 and carrying an annual interest rate of 2 percent.
Wynn Resorts' board of directors said in a statement that it moved Saturday to buy out Okada after an investigation by former FBI Director Louis Freeh discovered alleged improper payments to foreign officials.
The report accused Okada of paying $110,000 to Philippine gaming regulators.
Wynn Resorts contends Okada, who owns slot machine maker Aruze USA and its parent company Universal Entertainment Corp., violated the U.S. Foreign Corrupt Practices Act and company policy by giving cash payments and gifts to foreign officials.
In his report, Freeh said that Okada and his partners have "consciously taken active measures to conceal both the nature and amount of these payments."
Wynn Resorts also said it asked Okada to resign from its board of directors. The company also filed a lawsuit against him in Clark County District Court alleging breach of fiduciary duty and other offenses.
A copy of the lawsuit wasn't immediately available Sunday. Okada, who is based in Tokyo, released a statement today saying his company "will take all legal actions necessary" to protect its investment in Wynn Resorts.
"It is unfortunate that the Wynn Resorts board of directors has decided to operate as a Star Chamber and not like a board of a publicly traded company, protecting the interests of its stockholders," Okada said. "The decision by the Wynn board which followed a rushed investigation that lacks absolute findings, to redeem Universal Entertainment's nearly 20 percent holdings in Wynn Resorts based on its project is outrageous."
Okada said he has not been provided with the opportunity to review the Freeh Report.
"It is now more evident than ever that additional independent oversight is needed on the Wynn Resorts board," the statement said.
Bill Lerner, principal with Union Gaming Group in Las Vegas, said Wynn Resorts' articles of incorporation provide a clear remedy, with a great deal of discretion for the board, for such a move by the company.
"This will be a highly accretive transaction for Wynn Resorts," Lerner wrote in a research report Sunday. "Effectively what is happening is the cancellation of 19.5 percent of the outstanding shares at a 31 percent discount (representing $77 per share) in exchange for $38 million in annual interest payments."
Lerner said he expects Okada to challenge "the magnitude of the discount."
Shares of Wynn Resorts gained 2 cents, or 0.02 percent, to close Friday at $112.69 on the Nasdaq.
LEGAL BATTLE ESCALATES
Wynn's decision to forcibly buy out Okada represents an escalation in the legal battle between the company and Okada, which began in January when Okada filed suit demanding Wynn open company records concerning certain transactions.
In his suit, Okada seeks documents related to a $135 million donation by Wynn Resorts to the University of Macau Development Foundation. He also wants to know how his investment of $30 million in Wynn Resorts to develop a Macau casino project was used, according to court records.
Clark County District Judge Elizabeth Gonzalez is expected to rule Thursday on which documents are to be turned over to Okada.
The lawsuit led to the U.S. Securities and Exchange Commission opening an "informal inquiry" and asking Wynn Resorts to preserve information about the donation and other business dealings in the Chinese territory.
Okada's company, Universal Entertainment, has begun construction of a $2 billion casino resort in Manila Bay. Wynn argues the project is a conflict of interest and would compete with Wynn's Macau properties.
Wynn Resorts said Sunday its Compliance Committee had concluded a yearlong investigation after receiving an independent report detailing numerous apparent violations of the U.S. Foreign Corrupt Practices Act by Aruza USA, its parent company Universal Entertainment and Okada.
The law prohibits U.S. companies and individuals from making bribes in foreign countries in order to obtain or do business in those countries.
COMPANY ALLEGES REGULATOR PAYMENTS
Wynn Resorts said its Compliance Committee, chaired by company director and former Nevada Gov. Bob Miller, hired several investigators, including Freeh and Sporkin and Sullivan LLP.
In a statement, the company said Freeh's investigation uncovered and documented more than three dozen instances over a three-year period in which Okada and his associates engaged in improper activities for their own benefit in apparent violation of U.S. anti-corruption laws and gross disregard for the company's code of conduct.
"Mr. Okada and his associates and companies appear to have engaged in a longstanding practice of making payments and gifts to his two chief gaming regulators at the Philippines Amusement and Gaming Corp., who directly oversee and regulate Mr. Okada's Provisional Licensing Agreement to operate in that country," according to the company's statement.
Wynn Resorts said Sunday the "board was unanimous (other than Mr. Okada) in its determination." The company also has informed the board of directors of its subsidiary, Wynn Macau Ltd., of its actions and will recommend Okada's removal from the Wynn Macau board of directors.
If the allegations against Okada are true, they appear to violate gaming regulations in Nevada and Macau.
"The Compliance Committee and the entire board are deeply disturbed by the behavior of Mr. Okada and we have fulfilled our obligations to our stockholders, the state of Nevada and the Wynn community," Miller said in the Wynn Resorts statement. "As directors of a gaming company privileged to hold licenses, we have a duty to uphold the highest ethical standards and comply with the laws and the terms of the licenses upon which our business depends."
Miller said it is "clear from the Freeh Report that Mr. Okada repeatedly flouted these requirements."
The Freeh Report is the culmination of a yearlong investigation "based on increasing concerns the board had relating to the activities" of Okada and Aruze USA in the Philippines. The company said Okada had made statements to the Wynn board of directors that "gifts to regulators are permissible in Asia."
"Mr. Okada is the only director of Wynn Resorts who has continued to refuse to sign the company's Code of Conduct or participate in mandatory (anti-corruption) training for directors," the statement said.
Wynn Resorts "intends to communicate with the appropriate regulatory agencies and government authorities on these matters."
Contact reporter Chris Sieroty at email@example.com or 702-477-3893.