The sale by founder and former CEO Steve Wynn of his entire stake in Wynn Resorts (NASDAQ:WYNN) creates more opportunities for the casino operator to expand or even be acquired. The allegations of sexual misconduct against the casino mogul created a cloud over the resort's prospects, even potentially putting at risk its existing gaming licenses and those it might seek to acquire.
While not entirely starting with a clean slate, as the board of directors might still face questions, this represents something of a fresh start for the resort operator, particularly after three investors scooped up sizable stakes in Wynn Resorts.
A gaming giant steps in
Under pressure because his continuing connection to the company threatened the entire organization, Wynn sold 8 million shares to funds managed or advised by institutional investors T. Rowe Price and Capital Research & Management, which bought 3 million shares and 5 million shares, respectively, and he sold an additional 4.1 million shares on the open market.
Galaxy Entertainment Group (OTC:GXYEF), a Hong Kong-based casino operator with resorts in Macau, didn't buy from Wynn personally, but purchased 5.3 million newly issued shares of Wynn Resorts stock at $175 each for a total of $927.5 million.
The purchase gives Galaxy a 4.9% stake in the casino and gives Wynn Resorts some assurance that it won't lose its license in Macau when it comes up for renewal. Most of Macau's gambling licenses are up for review in 2022 (the concessions of MGM Resorts and SJM Holdings come up in 2020), and partnering with a local resort operator may reduce the risk it will be denied.
Galaxy could also use the stake to launch a push into Japan as the country finalizes legislation legalizing gambling and creating an integrated resort market. Casino developers from around the world have expressed interest in securing a license there, and partnering with Wynn, which is renowned for its world-class facilities, could enable Galaxy to enter Japan. There's also speculation that Galaxy might seek to acquire Wynn Resorts.
Expanding the universe of opportunity
Galaxy is the one of the world's largest casino operators by market capitalization, with a value of $38 billion, second only to Las Vegas Sands, which is valued by investors at around $57 billion. Wynn Resorts has a market cap of $18 billion. Galaxy used nearly half of its available cash on hand to buy the Wynn shares.
Galaxy operates three flagship destinations in Macau, including the Galaxy Macau in the Cotai district, the adjoining Broadway Macau, and the Starworld Macau on the peninsula. It has plans to significantly expand its presence on Cotai with future development totaling 1 million square meters.
Galaxy notes it has the largest development pipeline of any casino operator in Macau, and also has conceptual plans to develop a world-class resort on a 2.7-square-kilometer parcel on the nearby island of Hengqin. Beijing has signaled it wants Hengqin to become a tourist center for mainland Chinese and foreigners just like Macau, so Galaxy dropping nearly $1 billion on a U.S. casino operator when it clearly has other priorities suggests it has bigger plans for Wynn.
Going under the microscope
Whether any bigger plans come to fruition is another matter. Gaming regulators in Macau have said the purchase doesn't run afoul of local laws that prohibit a casino operator from owning 5% or more of another one since Galaxy bought shares in Wynn Resorts, not its local subsidiary, Wynn Macau. But Nevada regulators have decided to take a closer look.
While Steve Wynn virtually created the integrated resort model, the Wynn Resorts of today isn't going to be the same as it was last year, or even last week. There may be more doors opening to the casino giant now that its founder no longer has a say in how it moves forward.