Wynn Resorts Ltd, the world's No. 2 casino operator, said on Tuesday (April 9) it scrapped preliminary talks to acquire Crown Resorts Ltd for A$10 billion, after the Australian Financial Review broke news of the negotiations.
Wynn's backtracking illustrates how media leaks of deal talks can test the resolve of potential acquirers. Crown shares jumped as much as 22% on the news to A$14.37, close to the $A14.75 per share level that Crown said Wynn's latest cash-and-stock offer valued the company.
This can make deal negotiations more difficult by emboldening acquisition targets to drive a hard bargain, analysts said. In this case, Wynn's inexperience with pursuing big deals also likely played a factor, some analysts added.
"[Wynn] management's experience with acquisitions is limited, so when you target synergies it'll be nice to have more of a track record for such a large transaction," said Roth Capital Partners analyst David Bain, calling the termination of the deal talks a positive development for Wynn.
After the Australian Financial Review revealed Wynn's takeover approach, Crown not only confirmed the confidential talks on Tuesday, but also disclosed the price that Wynn was offering. It added that Crown's board had not yet considered Wynn's latest offer.
Wynn then issued two statements, first confirming the talks, and, a few hours later, stating that they had ended.
"Following the premature disclosure of preliminary discussions, Wynn Resorts has terminated all discussions with Crown Resorts concerning any transaction," the company said in a statement.
Examples of companies confirming acquisition talks only to back out hours later are few and far between, because they reflect a lack of conviction on the part of the aspiring acquirers.
Last year, drug maker Allergan Plc confirmed it was in the early stages of making an offer for peer Shire Plc, after Reuters broke news of the deliberations, only to issue a second statement a few hours later stating it would not make an offer.
Insurer Aon Plc said last month it would not pursue a merger with rival insurance brokerage Willis Towers Watson Plc, a day after it confirmed it was in early stages of considering an all-stock offer for the Irish company following a Bloomberg News report revealing the deliberations.
Hedge Against Macau
Wynn was founded in 2002 by Steve Wynn, who started his casino business in Las Vegas in the 1960s and created some of the city's most iconic landmarks – the Mirage, Bellagio and Treasure Island - before selling them. Beset by sexual misconduct allegations, Wynn left the company and sold his entire 11.8% stake in Wynn Resorts for $2.1 billion last month.
Wynn operates large resort-and-casino complexes in Las Vegas and Chinese gambling hub Macau, with another under construction in Massachusetts. The deal would have offered a hedge against Macau, where its licences are up for renewal, by giving it two lavishly revamped Australian casinos and a third being built on the prized Sydney harbour front.
Buying Crown would also fit in with Wynn's strategy to diversify geographically to protect its growth prospects if its Macau licences are not renewed.
The company's efforts so far have included ramping up promotion of a resort in Japan, a market seen as the next potential goldmine to Macau and a former expansion target for Crown.
"Wynn has typically grown through building their own facilities, not through acquisition," said Bain, the Roth Capital Partners analyst.
For Crown's 47% owner, James Packer, who re-badged his father's media empire as a gambling concern in 2007 only to withdraw from business engagements last year due to mental illness, the deal would have ended his career as a casino mogul with a A$4.7 billion payout.
He would have ended up as Wynn's biggest shareholder with 9.8% of its shares, based on its current number of shares on issue.
"We think Wynn's strategy was mostly defensive, but if they have a strong strategic rationale for wanting to acquire Crown, they would likely come back to the table when things settle down," said John DeCree, Union Gaming Securities' director of North America research.
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