Melco Drops Crown Deal Blaming Coronavirus
In June 2019, Crown Resorts was still reeling from the crushed deal that would have seen Wynn Resorts acquire the company. But then Melco Resorts and its CEO, Lawrence Ho, came forward with an offer to buy a 20% stake in Crown from James Packer.
That offer was welcomed until February 2020, when the deal disappeared. Melco rescinded the offer and blamed the coronavirus.
Big Stakes on The Table
Melco made its offer to expand its business into Australia with a strong foothold. And it was willing to pay $1.76 billion for a 20% stake in Crown Resorts, with the possibility of buying more over time.
James Packer, who had been wanting to offload some of his share in the company in a nod toward semi-retirement, was all in. He snap-called the deal.
The initial part of the transaction closed on June 6, 2019. The companies hoped the deal would be finalized by the end of September, pending a regulatory investigation by New South Wales.
Ho went about applying for gaming licenses in NSW, Victoria, and Western Australia with an eye toward the future of Melco’s expansion. It all seemed like a positive long-term deal for both companies…with the exception of the scrutiny under which the deal was to come.
Tough Road for Crown and Ho
Little more than two months after the companies announced their hopeful partnership, Crown came under fire via a media investigation by three prominent Australian media outlets. The allegations were wide-ranging in that Crown reportedly participated in or knowingly allowed money laundering, sex trafficking, and other criminal behavior at its casinos.
Ultimately, the investigation tied Crown to a powerful criminal syndicate in China. Members of that criminal organization would travel to Crown casinos in Australia via fast-tracked visas, and junkets delivered them to the steps of Crown properties. All the while, Crown allegedly looked the other way.
And then there was Ho, son of famed and alleged member of a Chinese crime syndicate Stanley Ho.
While Ho avoided any criminal prosecutions throughout his life, Australian businesses notoriously stayed away from doing business with him because of his reputation. Therefore, his son’s desire to enter Australian territories in the casino business did more than raise a few eyebrows.
Investigations Began
The New South Wales Independent Liquor and Gaming Authority was the first to launch an investigation into the proposed Crown-Melco deal.
The primary reason was that Crown had been recently authorized to build its massive Barangaroo project, complete with a VIP casino. And a part of that agreement with NSW was a clause that prohibited “any new business activities or transactions of a material nature between Stanley Huang Sun Ho or a Stanley Ho associate and Crown, any of Crown’s officers, directors or employees or any Crown subsidiary.”
That seemed to be a fairly clear deal-breaker, but the investigation went on for months without any final conclusion.
Meanwhile, Melco put a brief hold on the deal but gave every indication that it wanted to finish it.
The NSW inquiry didn’t officially begin until last month, and it wasn’t going well. As the NSW Supreme Court demanded documents for its investigation, Melco balked, saying company documents were privileged and would not be submitted.
All of this prompted Melco to say that it no longer wanted to eventually acquire a 50% share of Crown. The 20% under scrutiny would suffice.
All Stakes Off the Table
On February 6, Reuters reported that Melco withdrew its offer for the 20% stake purchase in Crown Resorts.
The reason given was a plunge in the number of travelers and the increase in casino closures.
Both are a result of the coronavirus spreading around Asia. Not only did the dangerous and sometimes-deadly virus prompt Macau to close all of its casinos for several weeks, it has hit the casino industry as a whole in the region very hard. People are afraid to travel, spend time in public places, and put themselves in potential danger.
The statement read, in part, “While Melco believes Crown has world-class assets that are complementary to its global business, it is Melco’s belief that, at this time, its capital needs to be deployed on its core assets.”
Approximately 90% of Melco’s revenue comes from Macau, and the company will have to figure out how to make up for lost casino revenue due to the coronavirus outbreak. In addition, Melco has also invested resources into a Studio City extension and its new City of Dreams Mediterranean casino property in Cyprus.
This latest in a series of hits for Crown Resorts is not the ideal start for 2020. The ongoing investigations by regulators into Melco’s initial investment in Crown pile on to investigations into the scandal into VIP operations at the casinos. As reporters continue to unearth new documents, Crown continues to deal with the fallout.
