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Risks

By Travis Hoium - Apr 18, 2013 at 4:12PM

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Wynn Resorts has been in a bitter battle with early investor Kazuo Okada of Universal Entertainment.

Wynn Resorts has been in a bitter battle with early investor Kazuo Okada of Universal Entertainment. After a yearlong investigation, Okada was found to have violated the U.S. Foreign Corrupt Practices Act and was found to be "unsuitable" to serve on the board, and under his ownership agreement redeemed his shares. Okada owns 19.5% of Wynn's stock, and under the agreement his shares are being redeemed for around $77 per share, which is being paid with a 10-year $1.9 billion promissory note with an interest rate of 2%. In short, Okada was kicked out and the company is buying his shares back at about a 30% discount.

It should be no surprise that Okada has filed suit and Wynn is in for a long legal battle. On the surface, it appears that the investigation into Okada was thorough and the board of directors voted unanimously to kick him out. But any legal battle has risks and the stakes are high for Wynn. If the company wins, it will also be a big win for investors, who can buy shares back at a discount, but if it loses the losses could be enormous. The battle will be worth watching.

From a macro perspective, growth in China is a huge risk for Wynn. China's economy has been on fire for a long time and there is concern that it could crash-land or that growth could slow dramatically in coming years. Whatever happens, there will be a direct impact on Wynn. A recession in China would be devastating for Macau and this is the biggest macro risk to any company operating in Macau.

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Wynn Resorts, Limited Stock Quote
Wynn Resorts, Limited
WYNN
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