Could COVID spur new round of gaming mergers, acquisitions?
During an earnings call in late April, Las Vegas Sands Corp. CEO Sheldon Adelson made an announcement that perked analysts’ ears.
“We’re interested in M&A.”
This was new. For years, Sands had been strictly focused on developing its own integrated resorts rather than a merger or acquisition.
“It was a shock. … It’s such a philosophical shift,” said Jefferies gaming analyst David Katz.
Adelson’s comment came after his company’s Las Vegas and Singapore resorts had been closed for weeks because of the coronavirus pandemic.
COVID-19 has hammered global tourism and the gaming industry, creating an environment that has weakened some companies. Experts say the crisis could provide opportunities to those with strong balance sheets, such as Sands, and lead to potential new entrants on the Strip.
‘Perfect time’?
“These types of companies are well-positioned to take advantage of the situation we find ourselves in,” said Reece Tomlinson, CEO of financial advising company RWT Growth, adding that now might be “the perfect time” for them to aggressively expand.
Robert Heller, CEO of New York-based financial advising company Spectrum Gaming Capital, believes some gaming companies will fold under the pressure of the COVID-19 crisis over the next six to 12 months, potentially offering opportunities for new players to enter the Las Vegas market.
“We think that there’s going to be gaming companies that … are not going to be able to service their debt, and may have to be restructured,” Heller said. “I think there may be opportunities where companies want to sell off their assets to bolster their liquidity.”
At least one company has alluded to having interest in a Las Vegas property. On May 13, Hard Rock International announced it had purchased the rights to the Hard Rock brand and related trademarks in Las Vegas.
Whether it’s new players or private entities interested in entering the Las Vegas market, Katz said ownership on the Strip could look different in the coming months — especially because there are companies looking to sell.
For months, a number of properties have been rumored or confirmed to be up for sale, including the Tropicana, The Cosmopolitan of Las Vegas and at least one Caesars Entertainment Corp. property.
Other analysts, including John DeCree of Union Gaming, have speculated that Wynn Resorts Ltd. could be another M&A target.
“Wynn always makes the top of the list when you talk about M&A because the assets are so desirable,” he said. “It’d be hard to say Wynn would agree to a sale at this point … but it might be something that makes sense for Wynn to consider.”
Wynn spokesman Michael Weaver declined to provide comment for this article.
In a May 6 report, DeCree noted that he doesn’t think Wynn is actively for sale or distressed; the company’s shares have nearly doubled since hitting lows in March.
But it could be the right timing for such a deal, with Wynn Resorts’ largest shareholder, Elaine Wynn, regaining the rights to move her shares later this year.
In August 2018 — shortly after Elaine Wynn’s former husband, Steve Wynn, resigned as chairman and CEO amid sexual misconduct allegations — Elaine Wynn agreed to refrain from changing her 9 percent stake in the company or joining groups seeking a takeover. In exchange, she was able to nominate Chairman Phil Satre to the board.
This agreement is set to last through Phil Satre’s board chairmanship.
Elaine Wynn declined to comment.
DeCree said in his report that Wynn’s fragmented ownership could be one reason for a broader exit event, especially if there were a stock component in the deal that would allow Wynn shareholders to cash out partially and roll equity into a combined company, “sharing in the upside.”
But he also believes “there would only be a select few potential buyers that would even be able to pull off an acquisition or merger the size of Wynn Resorts.”
Change of plans
Since its inception in 1988, Sands’ focus has been building new resorts in markets such as Las Vegas, Singapore, Macao or — until this month — Japan.
As recently as April 2019, Chief Financial Officer Patrick Dumont told investors during an earnings call that the company had no plans to steer off course.
“We think new development and renovations in very established, very positive growth market is the best way for us to deploy capital,” Dumont said on the call. “For us, it’s really tough to get comfortable with an M&A opportunity given how successful we’ve been, doing what we’ve been doing.”
But COVID-19 may have changed that.
“If you are the stronger balance sheet, when moments of turmoil occur, it does present opportunities,” Katz said.
Sands spokesman Ron Reese declined to provide additional comment and referred to statements made on the earnings call.
Sands’ decision to no longer pursue the development of an integrated resort in Japan allows the company to allocate its resources differently.
“We are grateful for all of the friendships we have formed and the strong relationships we have in Japan, but it is time for our company to focus our energy on other opportunities,” Adelson said in a May 12 news release.
The 86-year-old casino magnate has yet to reveal whether Sands is targeting any specific assets, but he said he’s still largely focused on the Asian market.
“We’ve always said that Asia is the best place for us,” he said on the April earnings call. “The population is the most inclined to play, to gamble than other populations. So it looks like if we can find something good in Asia, we’d certainly like to do that.”
The company’s latest earnings call presentation lists Macao, Singapore and South Korea as “principal areas of future development interest.”
Whatever Sands sets its eyes on is sure to be massive. Katz said finding the right M&A opportunity could be a challenge for Sands because whatever they acquire would have to be “at a high level.”
The Review-Journal is owned by the family of Las Vegas Sands Corp. Chairman and CEO Sheldon Adelson.
Contact Bailey Schulz at bschulz@reviewjournal.com or 702-383-0233. Follow @bailey_schulz on Twitter.
Mergers and acquisitions have been shifting the operating companies behind Las Vegas casinos for years. Here are some examples:
— Eldorado Resorts Inc. and Caesars Entertainment Corp.: The $17.3 billion merger between Reno-based Eldorado and Las Vegas-based Caesars is expected to close by the end of June. Company executives have said they plan to sell at least one of Caesars' Strip assets after the merger.
— Phil Ruffin and Circus Circus: Ruffin closed the $825 million acquisition of the 3,700-room resort-casino from MGM Resorts International in December 2019. He also purchased Treasure Island from the company for $775 million in December 2008.
— Hooters Hotel to Oyo: In August 2019, India-based hotel company OYO and Highgate purchased the former Hooters Hotel — located on East Tropicana Avenue, about 1,000 feet from Las Vegas Boulevard — from Junius Real Estate Partners and Trinity Hotel Investors LLC.
— Lucky Dragon to Ahern: The former Lucky Dragon hotel — which had been shuttered for nearly six months after being foreclosed by lenders — was sold to Don Ahern. The chairman and CEO of Las Vegas construction-equipment firm Ahern Rentals purchased the property from San Francisco developer Enrique Landa's Snow Covered Capital in April 2019 for $36 million.
— MGM Grand Inc. and Mirage Resorts: One of the most famous Las Vegas mergers took place in 2000, when Steve Wynn sold Mirage Resorts to MGM — then MGM Grand Inc. — in 2000 for $6.4 billion, creating MGM Mirage. It was the largest transaction of its kind in the gaming industry at that time, according to MGM's website. MGM Mirage went on to acquire Mandalay Bay's former parent company, Mandalay Resort Group, for $7.9 billion.
