Wynn’s conflict feels quite familiar

Spending habits by Wynn Resorts Ltd. Chairman Steve Wynn have angered investors -- namely, one extremely incensed Japanese billionaire who happens to be his largest stockholder, controlling almost 20 percent of the casino operator.

When Wynn Resorts board member Kazuo Okada filed suit in Clark County District Court on Jan. 11 to force the company to open its financial books and records, Wall Street became concerned.

"We believe the lawsuit will weigh heavy on shares," Sterne Agee gaming analyst David Bain warned investors the day after the legal action was revealed in a filing with the U.S. Securities and Exchange Commission.

A week after the lawsuit was filed, Okada submitted documents to the SEC in which he proposes to replace three current Wynn Resorts board members -- including two of Steve Wynn's closest confidants -- with his own slate of candidates.

Clearly, this is going to get uglier.

Sound familiar?

More than a decade ago, Steve Wynn lost control of Mirage Resorts under similar circumstances.

Shareholders blew a gasket in early 2000 when Mirage's stock price cratered. Wynn had spent millions of company dollars on his art collection while expensive developments, such as the $685 million Beau Rivage in Biloxi, Miss., didn't provide an adequate return on investment.

In March 2000, following a meeting between Wynn and billionaire developer Kirk Kerkorian, Mirage's board agreed to a $6.4 billion buyout by the then-MGM Grand Corp., in which Kerkorian held a 66 percent stake.

Longtime gaming observers are speculating that history is repeating itself.

The endgame for the current fight is the split between Wynn, who turned 70 on Friday, and Okada, the 68-year-old chairman of Japan-based slot machine maker Aruze USA.

Wynn began his comeback shortly after selling Mirage, and Okada was his first stockholder, with a $260 million investment through Aruze in 2000.

"These disputes sound to us like early divorce proceedings, which could be positive for Wynn shareholders," Nomura Securities gaming analyst Harry Curtis said.

Wynn and Okada once had equal stakes in Wynn Resorts. That changed when Wynn and his then-wife, Elaine, divorced in 2010. The Wynns split their shares, leaving each with 9 percent, much less than Okada's 19.66 percent.

However, Steve Wynn gained an amendment to the stockholders agreement that restricts Okada's shares and Elaine Wynn's stake. If Okada's attorneys can get a Clark County District Judge to toss the shareholders agreement, the ballgame changes dramatically.

Okada is questioning why Wynn agreed to donate $135 million from the company to the University of Macau Foundation. He believes some of the money came from an additional $120 million he invested in Wynn Resorts in 2002 for use toward Macau casinos. The company owns two Macau resorts and is looking to build a third.

Union Gaming Group principal Bill Lerner speculates Wynn could "leverage up" through the bond market and acquire both Okada's stake and
his ex-wife's shares for a combined
$3.3 billion. Lerner believes the debt would be "highly manageable."

The dispute with Okada sent Wynn shares down for a few days. It has since rebounded, closing Friday down 8 cents or 0.07 percent at $119.07 on the Nasdaq.

A hearing on Okada's lawsuit is scheduled for Feb. 9. Analysts speculate additional details of the Wynn-Okada dispute could spill out during the Wynn Resorts fourth-quarter earnings conference call in a few weeks. Wynn's attorneys, however, will try to keep their volatile client on a short leash.

Soon after the sale of Mirage Resorts, Wynn told anyone who would listen that Kerkorian did him a favor by eliminating the burden of running Mirage Resorts. At a financial conference in Los Angeles in the fall of 2000, Wynn told business leaders he out-negotiated Kerkorian, securing a $21 per share price for Mirage.

The sale allowed Wynn to buy the Desert Inn for $270 million, which became the starting point for Wynn Resorts. In addition to its Macau holdings, Wynn Resorts has two Strip properties and a market capitalization of more than $14.6 billion.

Times have changed since 2000. There isn't another white knight.

Rival casino companies have their own issues. Kerkorian, who will be 95 in June, owns just 23 percent of MGM Resorts International, which is managing more than $13 billion in debt. Caesars Entertainment Corp. has its own debt issues.

Meanwhile, Las Vegas Sands Corp. Chairman Sheldon Adelson is focused on Newt Gringrich's presidential campaign, donating millions of dollars to a super PAC, a figure some casinos companies pay to remodel their hotels.

It would be a media dream for Adelson to attempt a takeover of his rival, or even help Wynn out of the jam. The pair called a truce in their long-standing feud last year.

Now that would add to the spectacle.

Howard Stutz's Inside Gaming column appears Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. He blogs at lvrj.com/blogs/stutz. Follow @howardstutz on Twitter.