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Could Wynn settle lawsuits vs Elaine and Okada by splitting the company?

Last edit: jucifers on Thursday, 1st December 2016 3:00 pm
Last response by motoman 13th December 11:09am

How practical would it be for Wynn Resorts to settle pending lawsuits vs Elaine Wynn and Okada by splitting the company? For example, could Wynn Resorts give Elaine Wynn and Okada controlling interests in Encore and Encore Macau, in exchange for all claims on their Wynn Resorts stock?

Could Encore be run as a separate hotel, in the same way that Treasure Island separated from Mirage and Delano separated from Mandalay Bay?

With Wynn's grand expansion plans in Boston and Las Vegas and the softness of the Macau market, should Wynn Resorts look to strengthen its balance sheet by spinning off non-core assets? Could Encore and Encore Macau be considered non-core assets?

Thoughts?

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 hobgoblin7777 responded on Wednesday, 30th November 2016

I have not been to Macau (yet - plan to go sometime in the future) so I don't know if Encore (Macau) is connected to Wynn (Macau). If the Macau properties are set up like the Vegas properties there is no way in hell I see Steve going for such a proposition. Steve is too much of a customer experience control freak (and that is one of the things that makes him successful) to allow for something like that. Look at his behaviors, and corresponding actions, to Alon (potentially) being built across the street. He's already planning where he wants/hopes the pedestrian overpasses will connect the properties and the primary reason he is putting in Wynn Plaza is to control/enhance guest experience of patrons who wander into Wynn World from Alon.

Also, one has to remember the Mirage/Treasure Island split occurred (A) after Mirage Resorts was acquired by MGM (B) MGM was under financial duress and in dire need of funds to complete City Center and (most relevant to this topic) (C) Mirage and Treasure Island were never truly integrated properties. The only thing the properties shared to link them together was the tram (which at this point I am wondering when they will start charging patrons to use to complement their resort and parking fees?). MGM's divestiture of Treasure Island has/had very little to no impact on the operations/customer service experience of either property since the properties are (a) physically separate and (B) unlike Wynn/Encore MGM is not/was not trying to establish/sustain a continual experience between the two properties.

If Steve owned MGM I think a split like the one described would be feasible because although the City Center Components (Aria, Veer, Vadara, Mandarin) are better connected and more integrated than Mirage and Treasure Island they can still be recognized as stand alone properties. This does not seem to be the case for Wynn/Encore. The way Wynn/Encore are physically designed, and how the Esplanade and show room corridor join the properties makes them seem like one continuous structure/resort than two separate ones.

Additionally, Encore (post beach club) seems to be targeted to the night club/millennial crowd vs. Wynn (in my opinion) seems to cater to a more mature audience. Encore Beach Club is a cash cow. I don't see the Steve wanting to part ways with that entity. If such a split did happen would Steve (or Elaine) have room to put in an Encore Beach Club type property at Wynn?

If the split were to happen who would get the golf course/Wynn Paradise park? Also, who would get Wynn Design & Development and the resources of Deruyter Butler and Roger Thomas?

In the first incarnation of the Wynn Las Vegas website the Steve urged visitors to "Go find the surprises). If the split happened where would the surprises be?

Ok. Think I am done over analyzing this. If you've gotten this far hopefully this served as a nice little distraction from your work day. Thanks for reading.

 jucifers replied on Thursday, 1st December 2016

Thanks, Hobgoblin7777. That was a great analysis.

I agree with you that Steve Wynn isn't likely to split Encore, under normal circumstances. However, I do wonder if he would consider it, if Wall Street ever attempts to block Wynn's development of new hotels. In other words, if Wynn found himself in a situation like 2000 at Mirage Resorts when he decided to sell to MGM and build Wynn/Encore.

If selling Mirage Resorts to MGM allowed for the development of all existing Wynn Resorts properties, by the same token would Steve Wynn consider spinning off some assets to keep building new hotels well into the future? The Las Vegas and Macau markets seem fully saturated. Wall Street can't be too happy about adding room inventory in either location.

I would imagine that if Wynn ever did sell Encore, he would keep the Paradise Park/golf course land and retain the services of Deruyter Butler and Roger Thomas. Wynn could build a better version of Encore Beach Club at Paradise Park.

Would the stellar Alon management team put their development plans on hold to acquire a share of Encore and manage the property? If Wynn sold Encore to them, the Alon team would maintain the highest standards of excellence. Service at Wynn's own flagship hotel could benefit from top level competition as well.

Thank you for being patient and playing along. I like to ask provocative questions because it's a great way to learn.

 motoman replied on Tuesday, 13th December 2016

@hobgoblin7777
Agreed, great analysis. And I love the over-analyzing! It's one of the things I initially missed after the retirement of TwoWayHardThree, and am so glad has resurrected here.

 MinVegas responded on Friday, 2nd December 2016

At what point are the lawsuits so expensive that Wynn can't just fight them instead? It seems to me the only way this makes sense is as a settlement if he feels he's losing; and if he feels the judgment will be more than for the operating profits of Encore for several years.

In addition, selling a Macau hotel is difficult because neither Elaine nor Okada has a permit to operate a casino there, and Wynn Resorts sold their sub-consession to Crown a decade ago.

 jucifers replied on Saturday, 3rd December 2016

Thanks for the response, MinVegas. You raised some excellent points.

The key question for me is: Would Wynn trade properties in exchange for conserving cash and maintaining solid control of the core Wynn properties?

According to the New York Times, in 2012 Wynn Resorts enacted a provision of the agreement with Okada that forced Okada to sell his shares at a discounted price. Instead of cash, Okada was given a 10 year promissory note per the original agreement. Without Elaine's or Okada's shares, Steve Wynn held only 8 percent of Wynn Resorts. Here's the link to the article: http://www.nytimes.com/2012/03/03/business/wynn-resorts-partners-split-and-accusations-fly.html

Back to the lawsuits versus Okada and Elaine: Are these lawsuits ticking timebombs that could affect Wynn's ability to continue developing new hotels? Would that provide enough incentive for Wynn to split the company?