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Analysts Weigh in on Wynn Resorts Fight with Board Member Kazuo Okada

By Steve Green, Las Vegas SunMcClatchy-Tribune Regional News

Feb. 21, 2012--With lawsuits piling up between casino captains Steve Wynn and Kazuo Okada, gaming industry analysts on Tuesday expressed concern that uncertainties about the disputes may persist for some time.

Just last summer, Wynn's Las Vegas company Wynn Resorts Ltd. appeared to be on its way toward earning an investment-grade debt rating -- a rarity in the gaming industry -- based on CEO Wynn's record of generating profits while keeping debt in check.

But debt rater Standard & Poor's on Tuesday revised downward its rating outlook on Wynn Resorts to stable from positive.

S&P maintained its BB+ rating on Wynn's debt.

S&P reacted after events over the weekend in which Wynn Resorts said an investigative report determined board member Okada was unsuitable to be associated with the company because of alleged payments he made to foreign gaming regulators.

Wynn forcibly redeemed Okada's 24.5 million shares at a discount for a $1.9 billion, 10-year note and sued him.

Okada earlier this winter sued Wynn Resorts, saying it had failed to provide information he as a board member is entitled to.

S&P analysts said Tuesday that the Wynn Resorts' outlook was downgraded because of concerns the Wynn Resorts plan to redeem Okada's shares with $1.9 billion in new debt "reduces the likelihood" that Wynn's BB+ debt rating could be raised in the "intermediate term."

Wynn has been carrying some $3.2 billion in debt. After the Okada transaction, its debt has grown $1.9 billion while stockholders' equity has declined a corresponding amount.

"In addition, the outlook revision reflects the likelihood of further litigation and potential governance disruption related to this issue, as well as the risk that the valuation of the redeemed shares will be contested, resulting in a potentially higher payout," Standard & Poor's said in its rating report.

S&P analysts say they expect Wynn will proceed with its planned Cotai resort development in Macau, China, and that it will "maintain some flexibility to pursue development opportunities beyond Cotai over the longer term."

"If we were to trade WYNN (Wynn Resorts) on headline counter punches in its disputes with Okada, WYNN may have won a round by seemingly redeeming 20 percent of its stock at a 31 percent discount to market prices," added Sterne Agee analyst David Bain. "However, in our view, this marks the beginning of what is now a foreseeable, longer-term showdown between the two parties, likely leading to additional bruising on both sides."

Andrew Zarnett and Carlo Santarelli, analysts at Deutsche Bank, in the meantime, presented several questions:

--Does an existing shareholder agreement between Steve Wynn, his ex-wife and board member Elaine Wynn and Okada continue, restricting the Wynns' rights to sell shares, or are they free to sell without restrictions?

--How comfortable will gaming regulators be with the company owing $1.9 billion to Okada?

--How does the redemption of Okada's shares affect existing shareholders who may now exceed the ownership threshold requiring them to gain gaming licenses?

"Many questions remain," Zarnett said in a research note.

Okada's companies, Universal Entertainment Corp. and Aruze USA, in the meantime, issued a new statement on the disputes Tuesday.

"While Wynn Resorts has still not provided Universal with a copy of the 'investigation' report, we believe the allegations leveled against Universal are motivated by self-interest and represent the results of an incomplete and otherwise flawed corporate governance process in breach of the board's fiduciary and other duties. Universal believes the entire process has been tainted by the desire to serve Steve Wynn's predetermined goal of removing Aruze USA as the largest stockholder of the company. Aruze USA intends to commence litigation, which includes seeking a temporary restraining order and preliminary injunction, to protect its interests in Wynn Resorts and prevent the redemption of its shares," Okada's statement said.

Wynn stock, in the meantime, ended the day up nearly 6 percent at $119.40 on the news.


(c)2012 the Las Vegas Sun (Las Vegas, Nev.)

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