Kazuo Okada, the Japanese billionaire forced to sell his stake in Wynn Resorts Ltd. at a discount, pledged to fight to protect his investment. He has a history of winning lawsuits.
Okada’s Universal Entertainment Corp. today reiterated a vow to take legal action and yesterday called the sale “outrageous,” in e-mailed statements. Wynn had accused Okada of improper payments and said it was giving Universal a $1.9 billion promissory note for a stake worth $2.77 billion at the market price.
The redemption comes after 69-year-old Okada’s lawsuit last month demanding Wynn divulge information about a HK$1 billion ($129 million) donation to a university foundation in Macau, home to its most profitable casino. With Okada as chairman, Universal has prevailed in tax, patent and libel cases in Japan over the past six years.
“Investors like the fact that Universal often sues, rather than negotiate these disputes secretly, as so many other companies do,” said Mitsushige Akino, who oversees $600 million at Ichiyoshi Investment Management Co. in Tokyo.
Okada, who got rich selling machines used in Japan’s 19.4 trillion yen ($243 billion) pachinko industry, has a record of going to court and winning.
Aruze Corp., as Universal was previously called, won a 2008 tax case, a 2007 libel case and a favorable judgment in an appeal by Japan Electric Amusement Machine Patent Association, which in 2006 sued the company in a patent case.
“Okada and his associates will try every means to overrule the forced redemption” by Wynn, said Victor Yip, an analyst at UOB Kay Hian Ltd. in Hong Kong. “The legal dispute is not going to end here.”
Universal fell 0.3 percent to 1,511 yen as of the close of trading in Tokyo trading today, after plunging 21 percent yesterday, the biggest drop since listing in 1998. Wynn Resorts was little changed at $112.69 as of Feb. 17 in New York, where markets were closed yesterday for a national holiday.
Wynn has scheduled a conference call today at 10 p.m., Hong Kong time, to discuss its announcement of the forced redemption of Universal’s holdings, according to the casino-operator’s website.
The court clash puts more at stake than the value of Universal’s 20 percent holding in the casino business founded by Stephen Wynn, now chairman. The Las Vegas-based casino operator’s allegations against Okada included that he violated U.S. anti-corruption laws and made cash payments to gambling regulators in the Philippines, where Universal has broken ground on a $2.3 billion hotel and casino resort as part of Manila’s Entertainment City project.
Philippine Amusement and Gaming Corp. Chief Executive Officer Cristino Naguiat, Jr. said the authority received no cash or in kind payments from Okada, according to an e-mailed statement from the gaming regulator today. The Universal chairman visited the gaming authority, also known as PAGCOR, yesterday and told Naguiat that the $110,000 in payments referred to in the Wynn statement as improper were for business associates’ accommodations, according to a PAGCOR statement yesterday.
“Based on records of Okada’s group, the $110,000 represented various accommodations granted to Okada’s business associates not only from the Philippines but from other countries as well from 2008 to 2011,” Naguiat said in the statement yesterday.
The case won’t affect Okada’s Manila investment “right now,” PAGCOR said in an e-mailed statement today. “We believe this issue is an intra-corporate battle between Mr. Kazuo Okada and Mr. Steve Wynn.”
Wynn Resorts has said its running dispute with Okada stemmed from Universal’s decision to compete by pursuing projects in the Philippines. Okada, who helped bankroll Wynn’s entry into the casino business, was removed as vice chairman after admonishments from the board over the Philippine’s plan, Wynn Resorts said.
Universal plans to open two casinos and three hotels in Manila by next year and will decide by 2015 whether to build more gambling venues in Asia, Okada said in a September interview. Okada has said he wants to expand into casinos as sales of pachinko machines in Japan aren’t growing enough.
Universal gets 95 percent of revenue from sales of machines for Japan’s pachinko parlors, where customers play a kind of vertical pinball and amass steel balls to win prizes that can be exchanged for cash to avoid the country’s prohibition on gambling.
Universal revenue has fallen 7 percent in the five years through March 31, 2011, according to data compiled by Bloomberg. Wynn sales almost quadrupled from 2006 to 2011, the data show.
Okada got into pachinko after selling his juke-box repair business and using the proceeds to make pachinko machines for children, according to a July 2000 interview published in Japan’s Asahi newspaper.
He founded Universal Lease Co. Ltd. in 1969, which became Aruze Corp. in 1998 before changing its name to Universal Entertainment in November 2009, according to Wynn Resorts’ website.
Forbes put Okada and his family at 564 on its list of the world’s billionaires in March 2011, estimating their net worth at that time at $2.1 billion. His Okada Holdings has a 68 percent stake in Universal, according to data compiled by Bloomberg.
While Okada vows legal action to protect his investment in Wynn, he is also awaiting Wynn’s decision on whether to comply with a suit requesting it divulge financial records related to its HK$1 billion pledge to the University of Macau Development Foundation. Nevada state court judge Elizabeth Gonzales said on Feb. 9 that Wynn had until Feb. 23 to respond.
The request by Okada is about “good corporate governance,” Gidon Caine, an attorney for Okada, said at the time.
The legal battles between Okada and Wynn Resorts founder Stephen Wynn have torn the partnership the two developed after meeting in 2000.
Okada has said Wynn “had few backers, from his viewpoint, and was looking for new ones,” in 2000 and that the decision work together was almost “immediate.”
Okada, through Aruze, invested $452.5 million in Wynn Resorts, according to a book the two wrote together. The Japanese businessman has been on Wynn Resorts’ board since October 2002, according to the Las Vegas casino company’s website.
“I remember when Okada invested in Wynn,” said Takashi Kiso, head of the Tokyo-based consulting firm International Casino Institute Ltd. “At that time, Wynn mentioned that Okada was the best partner and a promising entrepreneur. So it is a pity to see the recent dispute.”
Wynn named the upscale restaurant in his casinos Okada, while the Japanese billionaire said in December 2009 that the roughly 50 billion yen he’d invested in Wynn had almost been repaid in dividends alone.
Universal got 18.2 billion yen in dividends from its Wynn Resorts stake in the fiscal year ended March 2011, according to the pachinko-maker’s annual report.
The Japanese company may not receive $12.8 million in dividends payable March 1, as it no longer owns the stake following Wynn’s forced sale. Wynn declared a 50 cents a share dividend on Feb. 2.
In accusing Okada of improper payments, Wynn referred to an investigation it commissioned by Former Nevada Governor Robert Miller and Louis Freeh, the ex-director of the Federal Bureau of Investigation. The probe showed Okada violated U.S. anti-corruption laws and uncovered cash payments and gifts valued at about $110,000 to Philippine gambling regulators, Wynn Resorts said in its Feb. 19 statement on Business Wire.
Wynn Resorts also filed suit against Okada, Aruze USA and Universal Entertainment in Clark County, Nevada, for breach of fiduciary duty and related offenses, according to Wynn’s statement Feb. 19. The filing couldn’t be confirmed independently through electronic court records.
Casino companies sometimes end alliances because of “entanglements” between owners, said Kiso of the International Casino Institute. “This case is the biggest entanglement I remember.”