The future of Wynn Resorts (NASDAQ: WYNN) could be in doubt as The New York Post reported MGM Resorts (NYSE: MGM) may be interested in buying its rival. Although MGM CEO Jim Murren previously said his resort was unlikely to make a play, the resignation of founder Steve Wynn and the sale of all of his stock in the casino giant now makes a takeover bid more palatable.
Although the anonymously sourced insiders said it was some "back channel" feelers that were sent out about a bid, there remains doubt whether a play for the whole company is being considered, or perhaps just parts. There could be some high hurdles involved in MGM trying to swallow all of Wynn Resorts.
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Seemingly complementary operations
The allegations of misconduct against Wynn's founder and former CEO continue to reverberate as gaming regulators globally investigate the claims. In particular, Massachusetts is digging into the case in relation to Wynn Resorts' fitness to be a license holder in the state as its Boston Harbor project marches toward completion.
The casino operator has already said it was seriously considering renaming the resort to no longer be so closely identified with the Wynn brand, and it may be that the entire company needs a rebranding. A sale of Wynn would certainly be one way to achieve that, but MGM might not be the right buyer.
Wynn Resorts derives most of its revenues from Macau. It generated $6.3 billion in total revenues in 2017, $4.6 billion of which came from Macau, or 73% of the total. Its Las Vegas operations, which is the Wynn Resorts casino and Encore hotel, accounted for the remainder. Boston Harbor is Wynn's first real foray outside of those two markets.
In contrast, while MGM Resorts has two resorts in Macau, most of its money is made stateside. It has nine casinos in Las Vegas, has five more resorts sprinkled around Detroit, Mississippi, Maryland, and Atlantic City, and is developing a new resort in Springfield, Mass. Of its $10.8 billion in total revenue generated last year, just 18%, or less than $2 billion worth, came from Macau.
Not a straightforward sale
The problem for MGM Resorts in buying all of Wynn Resorts is that Macau has laws against concession holders owning more than 5% of another concession holder in the region. When Hong Kong-based Galaxy Entertainment (NASDAQOTH: GXYEF) bought a 4.9% stake of newly issued shares of Wynn Resorts following Steve Wynn's stock sale, Macau regulators issued a statement saying it did not run afoul of the law because it was below the 5% threshold and it was an investment in the parent company, not in Wynn Macau.
If MGM were to buy Wynn, it would then also be the owner of the casino operator's 72% stake in Wynn Macau, and it would undoubtedly run afoul of the law. MGM's ownership of MGM China, which owns and operates its MGM Macau and MGM Cotai resorts, would likely be put at risk. Moreover, with its Macau concession expiring in 2020, MGM would seemingly be loathe to jeopardize its renewal.
Las Vegas Sands (NYSE: LVS) would presumably run into a similar roadblock. It also derives most of its revenues from Macau, and its own concession is coming up for renewal soon, too. Moreover, when Macau gaming regulators created the concessions, there was a lot of controversy over its Solomon-like decision to split in two the concession awarded to Galaxy. The Hong Kong operator was given the primary one, and Las Vegas Sands was awarded a sub-concession that was created out of whole cloth (regulators then went on to create several other sub-concessions from the licenses that were awarded to Wynn and local operator SJM Holdings).
It would make more sense for MGM to want to acquire parts of Wynn's operations, such as Boston Harbor, though whether Massachusetts regulators would want MGM operating two casinos in the state is another matter. MGM has also battled with next-door Connecticut about allowing Indian tribal leaders to open a third casino in the state that would potentially siphon off gamblers from Springfield.
Although Wynn Resorts has not put itself up for sale, it is a world-class casino operator, and it would be a jewel for any other resort operator to own. But buying it whole, or even in parts, may not be as simple as it appears, particularly if that buyer is MGM Resorts -- or even Las Vegas Sands.
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