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Crown Finds New Suitor in Melco

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On May 30, Reuters reported that casino company Melco Resorts & Entertainment would buy a 20% stake in Crown Resorts from James Packer for A$1.76 billion. The huge gambling industry deal would see Melco buy 135.35 million shares of Crown Resorts at A$13 per share. The first part of the transaction would close on June 6 and be finalised on or before September 30.

Failed Crown and Wynn Talks

Nearly two months ago, Crown Resorts revealed that it was in talks with Wynn Resorts. The latter was expected to buy the former for approximately A$10 million. Within 24 hours of Crown announcing the discussion to the world, however, Wynn pulled the huge casino deal off the table. All talks subsequently stopped between the two gambling industry giants.

Crown was anxious to enter into a deal, but Wynn gave no indication that it was still interested. Some analysts subsequently predicted that a bidding war may begin. After all, Crown was ready for a deal, while other gambling entities seeing a potentially workable bid could be inspired to jump in.

At the end of May, a potential suitor did step up and ask for Crown’s hand…at least a part of it.

Even so, there could be problems with the deal, as regulators and stock holders express concerns.

Melco Resorts Makes an Offer

Melco Chief Executive Lawrence Ho said it was a good opportunity for his company to expand from Asia. “It is certainly our intention to continue, if the opportunity arises, to increase our stake in Crown,” he said.

Ho noted that he and Packer had worked together in the past. Notably, in 2006, Melco and Crown co-operated casinos in Macau – with special authorisation from the Macau government. That deal lasted until 2017 when Packer sold some of his overseas assets. However, the relationship between the two businessmen remained strong. Ho then recently began talking to Crown executives again to procure the recently-announced deal.

Part of the attraction for Ho was that Melco Resorts and Crown both had similar “DNA” and shared a track record and emphasis on quality.

The plan, according to Ho, was to submit applications for Melco executives to gaming regulatory authorities in relevant parts of Australia – Victoria, Western Australia, and New South Wales, to be precise – and then pursue an increased stake in Crown upon those approvals.

Commenting on the deal, Packer noted that Crown has and continues to be important to him. “I am still vitally interested in Crown’s success as a world-class resort and gaming business”. Packer said that the Melco deal also allowed him to better diversify his investment portfolio.

Not the Response Hoped For

Ho and Packer may have been excited about the deal and its potential. Nevertheless, shareholders do not feel the same enthusiasm.

The very next day of trading saw Crown Resorts shares dip significantly. On May 30, stocks listed at $12.885, and they dropped overnight to $12.24. Several days later, they hit $12.145. And the price has yet to recover in the week since.

Melco stocks took a similar track, going from $20.92 on May 29 to $19.29 by May 31. It further dipped to $18.78 on June 5.

Some analysts predicted that there may be an attempt by Wynn Resorts to block the move from Melco. In addition, the 19.99% buy from Melco would be the minimum shareholding possible without making a formal offer for a takeover. And that deal would require clearance from Australia’s foreign investment regulator since Ho is based outside of Australia.

Regulatory Probe Triggered

The problems were inevitable. Lawrence Ho is the son of casino mogul Stanley Ho. The latter has faced organised crime link allegations, which have vehemently been denied by the Ho family.

In 2014, Crown and the New South Wales government subsequently agreed on the Sydney project. However, a government clause stated that Stanley Ho and his companies could not be invloved in any future Crown activities.

News of the Crown-Melco deal caught the attention of the New South Wales gambling regulator. It immediately launched a review. Per Reuters, the regulator would “now review all relevant issues when considering the required approvals and probity checks.”

Shareholders and other interested parties have become increasingly concerned in the days since the announcement of the deal. Not only because of potential Wynn objections, but also due to the regulatory concerns and previous investigations into the Ho family.

The coming weeks will give a better indication of the deal’s viability and any possible restrictions on it.

If it is allowed, Packer may be on the path he has long sought to ease his way out of the business.Melco Resorts