WYNN/OKADA ROUND 2: A KNOCKOUT?

We doubt it.  Hard to believe Mr. Universal will settle for even close to a 30% haircut and a 2% decade long promissory note.

 

 

The sell side will portray this as a leveraged recap of Wynn Resorts.  Under the current terms, we calculate 16% earning accretion in 2012 and 20% in 2013.  On a free cash flow basis, the accretion looks even better – almost 20% for this year.  Not bad but also not realistic.  Okada doesn’t strike us as the kind of dude who is going to bend over and take a 30% haircut to the value of his shares along with payment in the form of a 2% yielding 10 year promissory note.

 

The move by the WYNN Board of Directors appears unprecedented.  Ultimately, the relationship is unsustainable and we suspect the two warriors will reach some sort of a settlement - eventually.  However, we think WYNN will have to pony up more cash and significantly narrow the discount.  Under any believable scenario, the transaction will still be accretive to EPS and FCF per share, just not at the levels discussed above or by the Street.

 

The big tail risk here is that Okada retaliates.  He has a history of being litigious and an airing of dirty laundry won’t be a positive for the Wynn brand both with customers and regulators (see http://www.bloomberg.com/news/2012-02-21/okada-takes-court-experience-to-wynn-fight.html).  Come to think of it, it may not be a positive for any US gaming company operating overseas.

 

WYNN will hold a 9am conference call this morning to discuss.


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