Crown pursuer in talks to sell $3.8b Boston casino

by Administrator

Washington | Wynn Resorts, the Las Vegas gambling giant that aborted talks last month to buy James Packer's Crown Casino, is looking to sell its yet-to-open 671-room resort outside Boston.

The sale talks with rival MGM Resorts International were revealed late on Friday (Saturday AEST) and just weeks ahead of the official launch of the $US2.6 billion ($3.8 billion) complex that has been eight years in the making.

While the Wynn sales talk was described as "very preliminary" and unrelated to any considerations involving Crown, it highlights a gaming market in considerable flux.

Chief executive Matthew Maddox said just over a week ago that the company would always look for top-notch assets in "cities that are global destinations".

Crown's future Sydney and existing Melbourne casinos could fit that bill and support Wynn's existing focus on high-roller Asian markets.

However there are other moves that complicate the picture, including a new CEO at Caesars Entertainment who is looking for a potential merger or sell-off opportunity, the Wynn sale in Boston, and the sale of two major properties in Las Vegas, said Brendan Bussman, partner at Global Market Advisors.

"There are a lot of moving parts across the industry," Mr Bussman told The Australian Financial Review over the weekend.

Confirmation of the Boston negotiations has surprised some observers as it comes after a long odyssey to develop and build a landmark casino on Boston Harbor, and almost three weeks after the company survived a near-death battle with Massachussetts regulators. The state's gaming commission issued a record $US35 million fine this month for the company's mishandling of sexual misconduct allegations against its founder Steve Wynn. It also imposed conditions on Mr Maddox as CEO.

Mr Bussman said Wynn's potential Boston sale was understandable given the local regulator "got a little heavy-handed in their actions" and failed to recognise the changes to corporate culture and operations that Mr Maddox has introduced over 16 months.

"If I'd been through all that ... and the regulatory body said you have to go through CEO training, I'd be pretty insulted," he said. "It doesn't tell me they want to work with them."

The so-called Encore Boston Harbor in Everett is slated to open its doors in June.

Talks over a possible sale to Wynn rival MGM have been underway for several weeks and were in the "very" preliminary stages, the companies said in a joint statement on Friday.

However, analysts warned any deal would become entangled in further regulatory concerns as MGM cannot hold more than one casino license in Massachusetts, where it has a recently-developed resort in Springfield.

Melbourne-based Crown confirmed it was in discussions over a potential $10 billion deal with Wynn after the Financial Review's Street Talk column revealed the negotiations in April.

Since then Wynn has remained tight-lipped on any dealings with Crown even as it dropped strong hints that its interest in high-quality acquisitions has been reignited after it settled its 15-month regulatory probe in Massachusetts.

"So while we are not pursuing any acquisitions at this stage, we will, along with all of our competitors, I'm sure, be looking at opportunities that you can’t replicate through development," Mr Maddox told investors on May 10.

Wynn and MGM confirmed the Encore talks after being pressed by The Boston Globe last week.

"Over the past several weeks, we have engaged in conversations around the potential sale of Encore Boston Harbor," they said.

"They are very preliminary and of the nature that publicly traded corporations like ours often engage in, and in fact when opportunities such as this are presented, we are required to explore.

"We cannot say today where these conversations will lead, however we can reaffirm our commitment to the communities where we operate today."

Analysts questioned the timing of the move given Encore is just weeks away from opening and is expected to generate a significant source of cash for Wynn after years of planning, approvals and construction.

"I think probably Wynn Resorts wants to wash its hands of Massachusetts and move on," Clyde Barrow, a casino specialist at the University of Texas Rio Grande Valley and former UMass professor, told the Globe.

Wynn's share price has been under pressure since it reported earlier in May revenue trends at its Macau and Las Vegas that disappointed the market, despite solid overall earnings. Analysts responded by issuing a slew of price target downgrades.

Since late April, the stock has fallen 19 per cent to $US121.42 a piece.

Wynn told analysts last week at a conference hosted by Nomura that its decline in high-roller market share in Macau, which generates most of the company's revenue, is because of renovations at its Peninsula resort and "relative weakness in the VIP market".

"The company does not think VIP is becoming worse and is hopeful that the market is in a bottoming process. (We are not so sure.)" Nomura analysts Harry Curtis and Daniel Adam wrote in a note.

They also noted that Wynn has communicated that it is more interested in "non-regional markets, likely outside the US".

However, that may not include Japan, where other firms have a better chance of success, they added.

Mr Bussman cautioned that the talk of a Wynn sale in Boston and another tilt at Crown are "mutually exclusive".

"It's sort of bizarre circumstances that these came up in the same breath. One is to expand the brand and the other is what's best for the company.

"And what everyone needs to focus on is the word 'preliminary'," on any Boston Harbor sale to MGM. "There are a lot of hoops they have to jump through, including finding a buyer for Springfield because the way the law is written you can only have one licence in the Commonwealth of Massachusetts."

[Correction: The size of the fine in the eighth paragraph was erroneously in billions. The fine was $US35 million.]