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Could the appointment of a relative outsider to the SJM board solve the knotty problem of who succeeds Dr Stanley Ho?

Friday, 01 October 2010 16:19
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The recent appointment of Timothy Fok as an executive director of SJM Holdings might just help untie the Gordian knot-like problem of how one day to replace Dr Stanley Ho.

Mr Fok, aged 64, is the eldest son of the late Hong Kong businessman Henry Fok. Mr Fok senior is considered by many inside and outside Macau as the person who effectively bankrolled Dr Ho’s bid via STDM for the Macau gaming monopoly back in 1962. Dr Ho stayed in the public eye, while Mr Fok senior—also known by his Chinese name Fok Ying-tung—remained more in the background as far as the casinos business was concerned.

Mr Fok the younger has many of the trappings commonly associated with second-generation wealth in this part of the world—expensive education overseas at a private school (Millfield in the United Kingdom), and marriage (for a while) to a former Miss Hong Kong. But he is far from being a lightweight in terms of his public profile. As a member of Hong Kong’s Legislative Council (Legco), he is clearly identified with the patriotic so-called ‘pro-China’ elements in the chamber. Like his father before him, and like Dr Ho, Mr Fok junior is also a member of the Chinese People’s Political Consultative Conference, an advisory body to the Chinese government.

Mr Fok junior is also well known to Hong Kong residents as President of the Sports Federation and Olympic committee of Hong Kong and President of the Hong Kong Football Association. His Cruella de Vil-style hair (black with a bright silver streak running through it), his trademark centre parting and his aviator sunglasses, were a familiar sight on television screens and in newspapers during the equestrian events held in Hong Kong during the Beijing Olympics of 2008.

Honourable compromise

More important than his memorable sartorial style is the fact that he’s almost family in terms of his pedigree, without actually being a Ho. That means he’s more likely to be acceptable to frequently squabbling Ho family members as a compromise candidate for chairmanship of either STDM or SJM, or possibly both. Even more significant is that the Fok Ying Tung Foundation, started by Mr Fok senior in 1984, owns 26.5% of STDM, and therefore a portion of SJM.

Of the other possible candidates to succeed Dr Ho as chairman, Dr Ambrose So (an Executive Director as well as the CEO of SJM Holdings) is amply qualified. He is erudite (he’s been known to solve mathematical problems as a form of relaxation). He’s also shrewd (witness the way he has helped Dr Ho not only tackle the competitive challenge from the foreign operators in a post-monopoly market but actually helped rebuild SJM’s market share year on year from an historic low of 27% in 2008 to reach 31.1% in September this year). He does, however, suffer from the probably fatal flaw of not being family. As a result, while personally charming and reportedly fastidious in his approach to SJM’s internal politics, he could not be guaranteed to carry enough authority within the disparate Ho clan.

The United States has many examples of fabulously rich men leaving their businesses to much younger wives—as if to make up for a lifetime of hard-nosed business deals. It seems unlikely that kind of late-blooming sentimentality will play a role in the case of Dr Ho and SJM.

Dr Ho will be a venerable 89 at his next birthday in November—a hefty four decades older than his current consort, Angela Leong On-kei. Ms Leong has managed to become a Director of SJM on the strength of her strong domestic resume, but that may prove to be the full extent of her rise in the company hierarchy.

Whatever happens in the succession race, Ms Leong and the children she has borne Dr Ho are likely to be well provided for from his reported US$2.1 billion fortune. That likely bequest, and the business and political contacts Ms Leong has made during her three years as a director of SJM, may be enough to enable her to form a Macau gaming operation in her own right. Such a role could possibly be as a minority shareholder in someone else’s project (she has been linked—though without any independent confirmation—to a recent anonymous share purchase on the stalled Macao Studio City project). Alternatively, Ms Ho could be kept ‘onside’ by SJM—to use the jargon of politics—by being offered some kind of role handling the relationship between SJM and its satellite properties (those licensed by SJM but not directly managed by the company). Or she might become an operator of an SJM satellite casino in her own right—either via a new build project, or via a stake or management role in an existing satellite.

Lawrence Ho, one of Dr Ho’s 17 children,  and often mentioned in relation to the succession, has experience of running a major Macau-facing public gaming company as Co-Chairman of the Sino-Australian joint venture Melco Crown Entertainment (Nasdaq: MPEL). He doesn’t as yet, however, have a solid track record of success in the sector. Indeed, MPEL’s first effort, the sixstar, VIP focused Crown Macau (now Altira) had effectively to be rescued by his father’s business associates after it opened six months late and 203% over budget in May 2007. The market-busting 1.35% commission eventually offered to junket consolidator AMA in December 2007 in exchange for bringing in much needed high rollers to Crown Macau was effectively the price the whole of the Macau market paid for MPEL’s inexperience in those early days.

The current view of some analysts is that MPEL has again been underperforming—particularly in its US$2.4 billion Cotai resort City of Dreams. Credit Suisse said recently MPEL’s second quarter earnings were “about 13% below consensus”. Nomura said it expected Melco, the Hong Kong-listed part of the MPEL joint venture, to continue to report losses in the next couple of years, adding that its share price performance “will be capped by its complex corporate structure, risk of convertible bond dilution and widening Melco-MPEL holding discount due to diminishing interest among investors.” That’s hardly a ringing endorsement for the top job in the Ho family’s core business. An added complication is that were Mr Ho junior to take on the SJM job, he might encounter regulatory complications in Australia, where his MPEL JV partner Crown Ltd is licensed. At least one Australian state has previously declined to grant Dr Ho a gaming licence. Even with Dr Ho no longer involved in SJM, the Australian regulators may still baulk at SJM’s junket operator connections. That might mean Lawrence Ho having to choose between his father’s business and the one he built himself.

Singled out

The latter issue could also face Pansy Ho in relation to the SJM succession. Lawrence Ho’s half sister and his senior in terms of business experience as well as birth order, has already been singled out by the New Jersey Division of Gaming Enforcement as “unsuitable” to be a business partner for MGM MIRAGE (now MGM Resorts International) because of her family link to Dr Ho and his business associates. MGM has already given up its right to a casino operation in New Jersey in order to keep its 50:50 JV with Ms Ho in Macau. Would Ms Ho give up her US partner in Macau for the sake of taking over SJM if the Nevada regulators raised the stakes for MGM?

On paper, Ms Ho looks the strongest of the three family candidates for the SJM succession. As well as owning half of MGM Macau via the JV company set up with MGM Resorts, Ms Ho is managing director of the Hong Kong-listed shipping and property conglomerate Shun Tak Holdings. Shun Tak is chaired by her father and provides ferry services into Macau from Hong Kong as well as having real estate investments on both sides of the Pearl River delta, including One Central, the luxury shopping, residential and hotel complex next door to MGM Macau.

The JV has also made some mistakes. One of them was allowing the US$1.25 billion MGM Grand Macau (as it then was) to open in December 2007 with only one junket deal. A second mistake (though not one unique to MGM Macau) was to rely on mainly Western in-house marketing people to make up for that VIP shortfall, rather than engaging heavily and early on with the local junkets. With hindsight that could have been down to MGM’s concerns about US regulatory attitudes toward Macau junkets and their historic ties to Dr Stanley Ho’s gaming operations. Whatever the reasons for the policy, the result was that MGM Macau remained the weakest performer in terms of share of gross revenue for month after month and quarter after quarter. Only belatedly is that mistake now being rectified, with the same business associate of Dr Ho that helped out Lawrence Ho’s MPEL now doing a similar job at MGM Macau. The results are being seen almost immediately, with MGM aggressively pursuing new junket business, including opening a new 20-table facility in September for the exclusive use of one junket investor.

We know what Mr Fok junior is not (i.e., not a member of the Ho family), but do we know what he actually represents in terms of possible leadership for STDM and SJM? The most likely answer is that if he does succeed to one or both top jobs, he represents peace and stability. He will represent a compromise candidate that can be accepted by all the competing parties. Mr Fok junior will become the front man for the Ho clan, possibly with Dr Ambrose So running the business on a day-to-day basis. That potentially is a 360-degree reversal of the historical connection between these two powerful and wealthy families and a closing of a casino industry circle opened back in 1962. That, no doubt, would amuse the late Mr Fok senior and Dr Ho in equal measure.

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