New stake boost for Wynn Resorts

Galaxy’s investment could help in Macau, stop unsolicited offers

Wynn Resort’s nearly $1 billion share sale to a powerful Chinese gaming operator will stave off potential unsolicited suitors while giving the Las Vegas-based company a key local ally in talks with Macau regulators to extend its license.

Galaxy Entertainment Group, founded by Lui Chewoo, one of Asia’s richest men, agreed Thursday to buy 5.3 million new shares of Wynn Resorts for $928 million, giving the Hong Kongbased company a 4.9 percent stake.

The transaction was unexpected and came fast on the heels of Steve Wynn selling his 11.8 percent stake in Wynn Resorts and fully exiting the casino company, which he founded 16 years ago.

Galaxy is the world’s second-largest casino operator by market capitalization with a value of $38 billion. Las Vegas Sands is the largest at $56 billion. Wynn Resorts is valued at $18 billion.

Future plans

Galaxy made no mention WYNN

of what it plans to do with its stake in Wynn Resorts.

The company could have bought a much larger position in Wynn Resorts. It has a massive net cash position of $4 billion, according to JP Morgan. Most gaming companies have more debt than cash on their balance sheets.

Stifel analyst Steven Wieczynski foresees a potential takeover by the Chinese gaming company.

“Bringing these companies together would make perfect sense given the overlap in Macau while giving Galaxy some much needed diversification into the United States,’’ Wieczynski said in a note on Thursday evening.

Others don’t see such a blockbuster gaming deal on the horizon.

“The fact that Galaxy didn’t want to cross the 5 percent line indicates this is more of a strategic investment and not an attempt to take over or control the company,’’ JP Morgan’s Macau-based analysts DS Kim and Sean Zhuang said in a note Thursday night. “We don’t expect Galaxy to further increase their stake for the foreseeable future.’’

If Galaxy’s purchase of a stake in a Monaco-based casino and luxury hotel company is any indicator, the Chinese gaming company will not rush to boost its stake in Wynn Resorts.

Galaxy bought a 5 percent stake in the Monaco company in 2015, a transaction it called a “strategic investment.” It has has not increased its stake in the company since then.

Ongoing investigations

Galaxy might also give Wynn Resorts a leg up in Macau.

Wynn Resorts is facing regulatory scrutiny from U.S. and Macau regulators over sexual harassment allegations against its founder and former Chief Executive Officer Steve Wynn that could affect its gaming licenses.

The company also faces important talks with the Macau government about the renewal of its gaming licenses, which are set to expire in 2022.

U.S. gaming companies including Wynn Resorts, Las Vegas Sands and MGM Resorts International control significant market share in Macau, something the Chinese government has been keen to change, according to brokerage Union Gaming.

Wynn Resorts’ two Macau casinos account for 70 percent of the company’s earnings, and any regulatory problems on the Chinese enclave