Crown’s Share Price Fall Over 8% Due to Lack of Discretion

Shares of Crown Resorts Ltd [ASX:CWN] have copped a beating in today’s trading, down 8.79% at time of writing.

The blow is particularly harsh after Crown’s share price hiked nearly 20% Yesterday, with the company announcing a ‘confidential takeover proposal’ made by Las Vegas-based high-end hotel and casino operator, Wynn Resorts Ltd [NASDAQ:WYNN].

The proposal, which involved an acquisition consideration of 50% cash and 50% Wynn shares, had an implied value of $14.75 per share. Thus investor excitement was understandable.

This morning, however, Crown announced on the ASX that discussions between the two companies had terminated, resulting in today’s heavy price drop.

Failure to keep mouth shut sets Crown’s shares a-tumblin’

It seems Crown jumped the gun on this deal, thinking a public announcement regarding the discussions fell under the umbrella of ‘confidential’. Alas, that is not the case.

As reported by the ABC, Wynn Resorts abruptly ended the talks once they caught wind of Crown’s ‘premature disclosure of preliminary discussions’.

Indeed, Crown’s price sensitive Tuesday ASX announcement does seem to conflict with its message insisting ‘there is no certainty that these discussions will result in a transaction’. What’s more, Crown initiated a pause on trading pending the announcement, clearly aware it would have a significant impact on investor interest.

In fact, there’s no way a near AU$10 billion buyout offer from a $21.9 billion Wall Street-listed company would bypass a rock of the share market.

Both casino companies have seen their fair share of controversy. Founder Steve Wynn himself sold his stake in the company last year, resigning from his chairman and CEO positions due to sexual misconduct allegations.

In 2016, Crown faced the jailing of 16 staff members in China on illegal gamble promotion charges. Not long after that, the company retreated from international expansion plans, including one to build a casino in Las Vegas. This resulted in Crown having to sell the vacant Wynn land for $370 million.

Is it game over for a Wynn-ing deal?

Despite their current bitterness towards Crown’s lack of discretion, today’s turmoil by no means ends all possibilities of a future Wynn/Crown deal.

In fact, Crown’s boasting of the potential deal may work in their favour, as revealing their openness to such offers may see interest from other operators. Hard Rock International Inc is a potential suitor according to Deutsche Bank analysts.

As for Wynn, they are looking at expanding their Asia reach beyond its Macau property. Their interest in Melbourne-based Crown reflects their desire for offshore expansion.

ABC’s senior business correspondent Peter Ryan says of today’s events:

When Wynn reacted to this, it showed that they just didn’t like the way that the game was being played and decided to take their bat and ball and go away.

It doesn’t mean that Wynn won’t be coming back in some other sort of form.’

However, Crown still needs to complete their $2.2 billion Sydney casino, and also deal with the wavering commitment of Aussie billionaire James Packer to the company. Packer resigned from the board of his family company Consolidated Press Holdings last year, which holds a 47% stake in Crown.

Crown has fallen in value by 20% since the middle of last year, and profits failed to reach expectations. The company attribute this to the slowdown in the Chinese economy, meaning the usual big gamblers are now less likely to spend the big dollars when they travel to Australia.

Regards,

Ryan Clarkson-Ledward,

For Money Morning

PS: With both Crown and Wynn seeing the potential, but also the weaknesses, in holding a substantial market in China, it seems prudent to understand just how lucrative this area of the global market will become. Check out this free report on ‘China’s New Boom’ to see how you can use China’s rising middle class to your investment advantage. Download now.


Ryan Clarkson-Ledward is one of Money Morning’s junior analysts. Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects. Ryan’s primary focus is assisting Sam Volkering with background research and insight for readers by dissecting the latest events affecting the world. Working closely with Sam, they explore the latest in small-cap and technology stocks as well as cryptocurrency opportunities. You can find Ryan’s contributing research, developments, and supporting information across several e-letters, including:


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