Melco Faces 1-Year Regulatory Probe over Crown Buyout Plan
Melco Resorts and Entertainment’s buyout of 19.99% of Crown Resorts shares could take as long as a year for completion. Australian securities regulators say they must review the sale of James Packer’s shares to Melco, a Chinese gaming company.
The Melco-Crown deal is worth AU$1.2 billion. James Packer plans to retain 27% of his shares in Crown Resorts, the gaming group his father founded. Packer sold the Crown shares to Melco, which is owned by a former business partner, Lawrence Ho.
Melinda Baxter, an analyst for Bank of America Merrill Lynch, told Financial Review the deal raised several questions. The Merrill Lynch analyst said she sees upside from the deal, but in the short term, Melco’s link raises more questions than it answers.
Baxter said, “Crown gives a potential acquirer exposure to the defensive domestic gaming market through premium properties as well as a wider VIP network. Cost synergies, the ability to gear up Crown as well as the opening of Crown Sydney in 2021 make it attractive. While less likely, we also can’t completely rule out that Wynn returns to the table.”
NSW Focuses on Stanley Ho
The NSW Casino, Liquor and Gaming Authority plans to focus its vetting process on Lawrence Ho’s ties to Stanley Ho. Dr Stanley Ho is the Hong Kong businessman who opened the first casino in Macau in 1962.
Subsequently, Stanley Ho became known as the “King of Gambling” in China. The 97-year old gaming mogul held a monopoly in Macau until the Chinese government took over governance from Portugal in 1999. China opened Macau to foreign operators, while Stanley Ho’s SJM Holdings continued to operate there.
Two other Chinese companies received casino licenses: Galaxy Entertainment Group and Melco Crown. Melco Crown was a joint partnership between Lawrence Ho and Kerry Packer, the Australian media magnate. Packer’s Crown Resorts bought 33% interest in Melco Crown.
When Kerry Packer died in 2005, James Packer inherited Crown Resorts. For the better part of the next decade, Packer and Ho found huge success with the Melco Crown brand. When the Macau casino market took a downturn in 2014, Crown Resorts began a gradual sell-off of its share in Melco Crown.
Crown Deals with NSW Officials
2014 is a pivotal year for the current deal. In that year, Crown promised the New South Wales regulators they would not allow a link between Stanley Ho and Crown. Because of Stanley Ho’s five-plus decade connection to Macau gaming, NSW officials were concerned about Stanley Ho’s connection to Chinese organized crime.
These days, they remain concerned about Stanley Ho’s connection to Lawrence Ho. Aussie officials might have believe Stanley Ho fronted Lawrence Ho money to found Melco Resorts. If so, they might think the father still pulls the strings behind the scenes. Thus a year-long investigation is warrarnted.
Lawrence Ho Controls Melco
Those familiar with Melco Resorts and the Macau casino industry know that is not the case. Whatever might have been the case 15 years ago when Melco Crown (now Melco Resorts) started, it isn’t the case now. Stanley Ho has not controlled day-to-day operations at SJM Holdings in years.
In fact, his other children now control SJM Holdings, while Stanley ho retired in June 2018. He simply cannot influence Melco Resorts, due to his advanced age. Meanwhile, Lawrence Ho is one of the most dynamic casino executives in the world.
Lawrence Ho sounds confident he’ll past muster with New South Wales investigators. In a public statement, Ho pledged continuing interest in buying Crown shares. He said, “For Melco, once we clear through all the Australian regulatory hurdles, whether it is probity and foreign investment, we certainly have the appetite to increase our stake.”