Galaxy’s shares in Wynn Resorts may expand resort’s future in Macau

Updated March 23, 2018 - 10:18 pm

Wynn Resort’s nearly $1 billion share sale to a powerful Chinese gaming operator will stave off potential unsolicited suitors while giving the Las Vegas-based company a key local ally in talks with Macau regulators to extend its license.

Galaxy Entertainment Group, founded by Lui Che-woo, one of Asia’s richest men, agreed Thursday to buy 5.3 million new shares of Wynn Resorts for $928 million, giving the Hong Kong-based company a 4.9 percent stake.

The transaction was unexpected and came fast on the heels of Steve Wynn selling his 11.8 percent stake in Wynn Resorts and fully exiting the casino company, which he founded 16 years ago.

Galaxy is the world’s second-largest casino operator by market capitalization with a value of $38 billion. Las Vegas Sands is the largest at $56 billion. Wynn Resorts is valued at $18 billion.

Future plans

Galaxy made no mention of what it plans to do with its stake in Wynn Resorts.

The company could have bought a much larger position in Wynn Resorts. It has a massive net cash position of $4 billion, according to JP Morgan. Most gaming companies have more debt than cash on their balance sheets.

Stifel analyst Steven Wieczynski foresees a potential takeover by the Chinese gaming company.

“Bringing these companies together would make perfect sense given the overlap in Macau while giving Galaxy some much needed diversification into the United States,’’ Wieczynski said in a note on Thursday evening.

Others don’t see such a blockbuster gaming deal on the horizon.

“The fact that Galaxy didn’t want to cross the 5 percent line indicates this is more of a strategic investment and not an attempt to take over or control the company,’’ JP Morgan’s Macau-based analysts DS Kim and Sean Zhuang said in a note Thursday night. “We don’t expect Galaxy to further increase their stake for the foreseeable future.’’

If Galaxy’s purchase of a stake in a Monaco-based casino and luxury hotel company is any indicator, the Chinese gaming company will not rush to boost its stake in Wynn Resorts.

Galaxy bought a 5 percent stake in the Monaco company in 2015, a transaction it called a “strategic investment.” It has has not increased its stake in the company since then.

Ongoing investigations

Galaxy might also give Wynn Resorts a leg up in Macau.

Wynn Resorts is facing regulatory scrutiny from U.S. and Macau regulators over sexual harassment allegations against its founder and former Chief Executive Officer Steve Wynn that could affect its gaming licenses.

The company also faces important talks with the Macau government about the renewal of its gaming licenses, which are set to expire in 2022.

U.S. gaming companies including Wynn Resorts, Las Vegas Sands and MGM Resorts International control significant market share in Macau, something the Chinese government has been keen to change, according to brokerage Union Gaming.

Wynn Resorts’ two Macau casinos account for 70 percent of the company’s earnings, and any regulatory problems on the Chinese enclave could sink its stock price.

“Now that Wynn has backing from Galaxy, arguably the most prominent local operator that has a great relationship with governments, one could argue that the risk of (Wynn’s) license renew should be reduced,’’ Kim and Zhuang said.

Galaxy footprint

Galaxy operates three casinos on Macau and owns the largest undeveloped land bank on the Chinese gaming enclave. It is expanding its flagship, Galaxy Macau, by 3 million square feet.

The company is also looking at international expansion, including projects in the Philippines and Japan, according to its annual report published this week. Galaxy makes no mention of U.S. expansion plans in the report.

Analysts say the company has little interest in the U.S. gaming industry, which shows little growth compared with Asian markets.

“Ultimately, should this progress to an acquisition scenario, we think Galaxy is only interested in Macau and would therefore seek to concurrently sell the U.S. assets (Las Vegas and Boston),’’ Union Gaming analyst Grant Govertsen said in a note Thursday night.

Wynn Resort’s U.S. assets include two casinos on the Strip and one in Massachusetts that is due to open in June 2019.

The Review-Journal is owned by the family of Las Vegas Sands Corp. Chairman and CEO Sheldon Adelson.

Contact Todd Prince at tprince@reviewjournal.com or 702-383-0386. Follow @toddprincetv on Twitter.

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