One of the most glamorous and successful casinos ever built in Las Vegas is center stage for a strange, tension-filled battle over the company's future. Wynn Resorts (NASDAQ:WYNN), owner of Wynn and Encore Las Vegas, has seen two of its founders and key board members ousted by Las Vegas icon Steve Wynn in a saga that's part soap opera and part family feud.
For Wynn Resorts as a company, the fight is over who has control over decisions at the gaming giant. The answer to who wins may come down to court battles and who Wall Street supports at the company.
The battle over Wynn Resorts
Drama began to come public at Wynn Resorts in early 2012 when the board of directors said it had investigated Kazuo Okada and potential bribes he had given the Philippine regulators in an effort to win a gaming license in the country. When Steve Wynn founded Wynn Resorts and began building Wynn Las Vegas it was Okada who was the money behind the project, resulting in a 19.7% stake in Wynn Resorts in early 2012.
After a lengthy investigation, the board of directors found that Okada had acted improperly and his 24.55 million shares were redeemed at a 30% discount and turned into a $1.9 billion 10-year note with a 2% interest rate. Of course, Okada wasn't happy about this redemption and he's been fighting it in court ever since.
At the time the Okada drama began unfolding, Steve Wynn had a trio with virtual control of the company. Okada owned 19.7% of the company and Steve Wynn and Elaine Wynn controlled 8% and 7.9% respectively. With 35.6% of the voting shares it would take a complete revolt to overthrow their leadership or sell the company out from under them. After Okada's dismissal, Wynn's hold on the company began slipping because the Wynn's stake was less than 20% of outstanding shares.
Fast forward to 2015 and a dispute between Steve Wynn, the board of directors, and Elaine Wynn has resulted in Elaine being booted from the board of directors, in part because she would like to sell some of her shares. But as part of their divorce settlement neither Wynn can sell their shares without the others' consent and they even have to vote the same way on shareholder measures.
This puts Steve Wynn in an awkward position, trying to keep his ex-wife off the board of directors of a company she helped build and potentially having to vote for her if she can nominate herself to the board in a shareholder vote. The family feud is playing out very publicly, but it's more about control of Wynn Resorts than it is about allowing Elaine Wynn to cash in some of her current fortune.
What's all the fuss about?
This may seem like another billionaire divorce dispute, but its roots are at the heart of the Las Vegas Strip we know today. When he was running Mirage Resorts, Steve Wynn built many Las Vegas icons we know today, including the Mirage, Treasure Island, and the Bellagio.
But he fell out of favor with Wall Street and investors in 2000 when earnings began to flounder and some became upset he was spending hundreds of millions of shareholders money on art. With just 11.8% of the company, he had little power to prevent MGM Resorts (NYSE:MGM) from buying the company later that year.
Wynn would soon buy the Desert Inn for $270 million, the eventual site of Wynn Las Vegas, and the partnership between Kazuo Okada, Steve Wynn, and Elaine Wynn was truly born. The very structure of the company and how many shares the three owned meant that Steve Wynn effectively controlled the company, something he didn't have at Mirage. With Okada and now Elaine Wynn off the board that control becomes more tenuous.
Would anyone really buy out Wynn Resorts?
The question now is: What happens next at Wynn Resorts?
Given the current share count, Steve Wynn owns about 9.9% of the company and unless Elaine Wynn is let out of their current agreement the two own 19.4% of the company. But if that partnership breaks Wynn Resorts would be in a remarkably similar position as Mirage was in 2000. That's exactly what Steve Wynn wants to avoid.
It's not inconceivable to think Steve Wynn could make efforts to shore up his own ownership stake. He could announce a big buyback, increasing the percentage of the company he owns, or even use dividend proceeds to buy more shares. So, he has options to up his current stake.
To other companies, Wynn Resorts' $13 billion market cap and $4.9 billion of net debt may seem like a lot but it wouldn't be too much for Las Vegas Sands (NYSE:LVS) and its $44.9 billion market cap to gobble up. Las Vegas Sands CEO Sheldon Adelson and Steve Wynn have had an up-and-down relationship over the years and this could make Adelson the undisputed gaming king of Las Vegas, Singapore, and Macau.
Outside of Las Vegas, the Genting Group could be interested in the company as a way to get into Macau and acquire an established resort in Las Vegas. The company is planning to build a resort kitty-corner from Wynn Las Vegas on The Strip, but buying instead of building might make more sense.
At the moment, I don't see a reason Wall Street would lose faith in someone like Steve Wynn, who has a long history of building profitable gaming resorts and has built Wynn Las Vegas into The Strip's most profitable location. But if Elaine Wynn is allowed to sell shares and doesn't have to vote in sync with Steve Wynn he could lose control and there may not be a way to fend off an outside bid.
Control over the future of Wynn Resorts is at the center of the Wynn family feud right now and after what happened with Mirage 15 years ago it's easy to see why Steve Wynn is concerned.