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I’m struggling to see how WYNN creates value by IPOing its Macau operations. LVS has covenant issues and needs capital to complete Lots 5/6. For WYNN, all I see is dilution.

Why is a well capitalized company with few investment options seeking more cash?  Here are potential explanations?

  • High valuations for Hong Kong and Chinese stocks

WYNN is not exactly trading at a depressed multiple.  We calculate the 2010 EV/EBITDA multiple is around 11x which implies a 12x multiple on Macau EBITDA.  If the multiple isn’t higher than 12x, the offering will dilute current shareholders.

  • Position company to take advantage of potential acquisition opportunities

I’d be wary of WYNN on the acquisition front.  Historically, Wynn has not been acquisitive and really has no expertise in turnarounds.

  • Fund future new builds

Where would they build?  ROI in Las Vegas is dreadful.  Cotai is an option but they do not need an IPO to fund a Cotai project given the balance sheet and current cash flow.  Besides, equity is expensive capital which reduces the NPV of any project.

  • “’Cause everybody is doing it”

At the right price, it clearly makes sense for LVS to raise equity and avoid covenant issues.  Moreover, as we’ve written about, Beijing is pushing for a restart of Lots 5 and 6 by the end of 2009.  WYNN has no pressure.

  • Personal reasons

Steve Wynn’s marital issues have been well publicized.  Divorces are expensive and maybe Mr. Wynn needs the cash.

Investors’ knee jerk reaction so far is predictable, but that doesn’t mean it is right.  “Hong Kong IPO?  The news worked for LVS.  Must be good news for WYNN too.  Buy, Buy, Buy.”  When reality sets in the overriding question will be:  where is the value creation to offset the dilution?  We don’t see it.