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Galaxy Entertainment to be 'passive investor' in Wynn Resorts

Deputy chairman says 'quick window' opened for share purchase

The Galaxy Macau resort

HONG KONG -- Macau casino operator Galaxy Entertainment Group has bought into Las Vegas-based Wynn Resorts as "a passive investor," according to Deputy Chairman Francis Lui Yiu-tung.

Galaxy announced on March 22 that it had bought a 4.9% stake in Wynn Resorts, parent company of Galaxy rival Wynn Macau, for $927.5 million.

Galaxy's investment came as founder Steve Wynn sold off his entire 11.8% stake in his namesake company after resigning from management amid allegations of sexual misconduct and as Wynn and his former company moved to resolve a web of legal disputes.

Wynn Resorts agreed on March 8 to pay Japan's Universal Entertainment $2.4 billion to settle a dispute over the forced redemption of Universal's stake in Wynn Resorts in 2012. Funds raised from the share sale to Galaxy will go to the cost of the settlement.

Galaxy Entertainment Group Deputy Chairman Francis Lui

"It was a very quick window for us to make the decision" to invest, Lui told the Nikkei Asian Review in an interview in Hong Kong. "We are very lucky. It was a good opportunity to buy into a prestigious company. They have great quality assets, they are one of the better-run companies in the world and we are happy that we are able to buy a small part of them."

Lui said that Galaxy would not take a seat on the Wynn Resorts board. "We are a passive investor and would like to leave it at that for the moment," he said. Macau regulations restrict the city's six casino companies from holding stakes of 5% or more in each other.

The Nevada Gaming Control Board is now conducting background checks on Galaxy. Lui expressed confidence that no problems will be found.

"Galaxy is a blue-chip company," he said. "We are fully transparent. The regulators always have the right to look into things that might interest them. I am not worried at all."

Wynn's exit from his company came amid worries that his continued presence as a major shareholder could affect Wynn Resorts' licenses in Macau and the U.S., though he has denied the allegations against him. Wynn Macau's gaming concession will expire in 2022.

Asked whether having Galaxy on Wynn Resorts' share register will help prospects for its Macau renewal, Lui said: "It is a win-win. Yes, I think we have given them something they value and I think in return we are investing in a very nice company."

Some analysts think Wynn Macau's license still may be in jeopardy. "We don't believe that Galaxy's 4.9% investment in Wynn Resorts removes the risk from Wynn's concession rebid, particularly when Macau has regulations specifically preventing a combination of existing concession holders," Robin Farley of UBS wrote in a client note on March 23. She added that rising U.S.-China trade tensions could add to this risk.

Galaxy narrowly topped Sands China to capture the biggest share of Macau's gaming market for the past two years. Wynn Macau has usually been No. 5 in overall market share in recent years.

The Wynn Resorts stake compliments a 5% stake in Monaco casino operator Societe Anonyme des Bains de Mer that Galaxy bought in 2015 for 42.4 million euros ($52.6 million). SBM's Euronext-listed shares have risen more than 50% since then.

Aside from its Wynn Resorts investment, Galaxy also announced last week that it had been granted a provisional license for a planned $500 million casino resort on the Philippine resort island of Boracay. The project is to be a joint venture with local company Leisure & Resorts World.

The Philippine government is considering closing the island to tourists for up to a year to clean up environmental damage. "We support the government-initiated clean-up," Lui said. "It is the crown jewel of the Philippines. It should be kept high-quality and sustainable." Lui said Galaxy's construction should begin next year, with the first phase of the project opening within three years.

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