Crown Seeks Up to $686 Million for Melco Stock in Macau Exit

  • Crown Resorts to sell down stake in Melco Crown Entertainment
  • Gaming company to cut net debt, return money to shareholders

Why Crown Resorts Is Selling Melco Shares

Billionaire James Packer is moving quickly to offer part of Crown Resorts Ltd.’s remaining stake in its Macau casino venture to institutional investors, after scrapping plans for a gambling empire spanning the world’s largest gaming markets.

Melbourne-based Crown is offering American depositary receipts in casino operator Melco Crown Entertainment Ltd. worth as much as $686 million through a so-called block trade Thursday, according to a term sheet obtained by Bloomberg. On the same day, Crown abandoned a proposed spinoff of international assets as it announced it would sell half of its stake in Melco Crown to partner Melco International Development Ltd. for A$1.6 billion ($1.2 billion).

“This is all about risk management,” said Theo Maas, who helps oversee about A$3 billion in assets including Crown shares at Sydney-based Arnhem Investment Management. “You’re now looking at a much more predictable business with a much stronger balance sheet.’’

Even so, Packer’s retreat back to Australia is not without danger. More than a third of Crown’s revenue at its Melbourne and Perth resorts comes from international visitors, predominantly mainland Chinese, and they will be the mainstay of the planned Sydney resort. The roundup of 18 Crown staff in China in October for alleged gambling crimes has raised questions about the company’s ability to draw in Chinese high rollers.

Melco Crown fell as much as 8.4 percent to $15.86 in New York Thursday. Shares of other casino operators with Macau interests, including Las Vegas Sands Corp. and MGM Resorts International, also declined.

Block Trade

Amid the detentions in China, turnover from Crown’s program for high-wagering, top-priority customers at its Australian resorts slumped 45 percent from a year earlier in the most recent 23-week period, Crown said Thursday. 

The overseas spinoff was designed to isolate Crown’s Australian casino business from its Melco Crown investment, which was affected by a two-year gambling downturn in Macau. The merits of creating such a separate business were undermined by a nascent gaming recovery in Macau.

Crown will sell a 13.4 percent stake in the Macau casino operator to Melco International Development, it said earlier Thursday, reducing its holding to 14 percent from 27.4 percent.

A Crown subsidiary is also offering 40.97 million ADRs of Melco Crown at a range of $16.30 to $16.75 each in a block trade before trading opens in New York Thursday, according to the term sheet. The price represents a 3.2 percent to 5.8 percent discount to Wednesday’s closing price.

The deal comprises 13.64 million ADRs being sold in an underwritten offering, plus 27.33 million being sold via cash-settled swap transactions with the underwriters, the term sheet shows. Deutsche Bank AG, UBS Group AG and Morgan Stanley are arranging the sale.

Melco Crown Ambitions

Crown also said it’s considering selling an undeveloped plot in Las Vegas and will now focus on its casinos in Australia, led by a proposed A$2 billion high-stakes, luxury resort in Sydney.

The other investors in the Las Vegas site, located across from Wynn Las Vegas and purchased for $280 million in 2014, said Thursday they will explore all of their options to advance the project. The investors in the Alon Las Vegas group include Andrew Pascal, nephew of Elaine Wynn, the ex-wife of Wynn Resorts Ltd.

Packer will step down as deputy chairman, giving full control of Melco Crown to Lawrence Ho, Melco International’s chairman and chief executive officer.

The sales comes as Ho, the billionaire son of gaming tycoon Stanley Ho, has ambitious plans to enlarge the company’s international footprint, with casinos and hotels in the Asia region and beyond. Melco International’s stake in Melco Crown after the sale will rise to 51 percent from 38 percent, according to a company statement. The Macau casino operator will also cease to have the right to use “Crown” in the corporate name six months after the sale closes, it said.

The transaction is positive and shows “strong commitment” from Ho, wrote Vitaly Umansky, an analyst at Sanford C. Bernstein & Co., in a note Thursday. “The read through should not be that Crown is bailing on Macau,” he wrote. “Instead, the sell-down is related to Crown’s own internal restructuring and change in strategy.”

About half the proceeds from the sale to Melco International will be used to reduce Crown’s net debt, with the rest returned to shareholders, Crown said. The sale needs regulatory approval from Macau authorities and is expected to be completed in the first quarter of 2017. Earlier this year, Crown sold an $800 million stake to Melco Crown, reducing its holdings in the company to 27 percent.

Falling Shares

Melco Crown listed in 2006 in New York as a joint venture between Ho and Packer and raised more than originally planned at $19 per share. The stock price peaked in 2014, rising to $45.16 that March and has since tumbled to below its debut price.

Crown shares were halted for Thursday’s statement. The shares, which have fallen 9 percent this year, haven’t posted a positive year since 2013. At the same time, shares in Sydney-based rival Star Entertainment Group Ltd. which runs the city’s only licensed casino, are on course for a third straight year of gains.

Redeploy Capital

Cutting debt is “clearly positive for the group,” said John Likos, Morningstar Inc.’s Sydney-based head of credit research for Australia.

Crown can now “redeploy capital to fund high-quality growth projects,” Chairman Robert Rankin said in the statement. “Crown Resorts has a strong portfolio of future projects, anchored by Crown Sydney, and including our online and wagering platforms.”

Crown continues to prepare for a proposed initial public offering of 49 percent of a property trust that would hold some of its Australian hotels.

The entity Crown planned to spin off was also set to house Crown’s development site in Las Vegas, a 20 percent stake in Japanese restaurant Nobu and half of U.K. casino operator Aspers Group.

— With assistance by Michael Heath, Joyce Koh, Lisa Pham, and Fox Hu

    Before it's here, it's on the Bloomberg Terminal.