Philippines integrated resort Okada Manila, Australia’s Crown Resorts and US rival Wynn Resorts rank as the three most likely potential targets for any merger and acquisition moves by Las Vegas Sands after the global casino giant hinted it may consider such options, according to boutique investment bank Union Gaming.
In a note published overnight (Macau time), Union Gaming’s John DeCree pointed to comments made by LVS Chairman and CEO Sheldon Adelson during the company’s recent 1Q20 earnings call in which he stated “We are interested in M&A … I’m not going to give up on developing Integrated Resorts. I’m going to add on to our strategic thinking, strategic priorities that we can acquire because most of the other companies don’t have the balance sheet that we do, and they don’t have the potential market that we do … so I’m now taking on the strategy of both acquiring and building and developing.”
Taking on board further comments made by Executive Vice President and CFO Patrick Dumont that any such M&A activity would be dependent upon a historical 20%+ ROIC hurdle rate, DeCree singled out Okada Manila, Crown Resorts and Wynn as the most suitable targets – all of which fit the LVS preference of “being closest to the Asian consumer, and particularly the Chinese consumer.”
Among those, Okada Manila stands out as a unique opportunity for LVS to enter its third Asian gaming market (after Macau and Japan).
“While the Philippines gaming market doesn’t rival Las Vegas or Macau in terms of regulatory maturity and transparency, we think the region possesses many of the same supply-driven attributes that made Macau an attractive investment opportunity 15 years ago,” the note explains.
“As such, we think the high-quality gaming assets in Manila could be given some serious consideration … Okada Manila tops our list of potential M&A targets in Manila. Now that construction on the final hotel tower of phase I at Okada Manila is nearly complete, the property is ready to reach its potential on the other side of the pandemic.
“We estimate the property could generate around US$300m of EBITDA – which is just big enough to move the needle for LVS on its own. Of the four integrated resorts in and around Entertainment City – the main gaming district of Manila – Okada Manila is the largest and best positioned to take advantage of the favorable gaming trends in the Philippines.”
Crown Resorts looms as another obvious option given its recent trading in shares – most notably the acquisition then sale of a 9.99% stake by Melco Resorts & Entertainment.
“It’s easy to see why we think LVS could be interested in acquiring Crown Resorts, which includes a collection of high quality assets in a first world market with a solid Chinese VIP junket business, plenty of owned real estate, and some additional growth/development prospects,” DeCree said. “The company is under levered and with COVID-19 – trading at a discount to replacement cost.”
However, DeCree places Wynn Resorts at the top of the LVS hit list, largely due to the opportunities its Macau assets could provide.
“Wynn Resorts … makes the most strategic sense for LVS,” he says. “It would add US$1.6 billion of in place EBITDA immediately (normalized for COVID-19), plus cost synergies. It would give LVS 2,700 additional rooms in Macau and a significant increase in exposure to the higher-end premium mass and VIP segments.
“On one hand, this merger would eliminate one US operator in Macau, freeing a concession that could potentially be returned to the government and rebid possibly to a Chinese company.
“While this has its benefits, we hardly suspect the government would be interested in letting Sands China grow its market share from 24% today to nearly 40% post-merger. We believe there could be a work-around to this scenario involving another concessionaire and dividing the Wynn assets among them.
“Ultimately, we think a full acquisition of the Macau assets seems unlikely, but there could be an opportunity for LVS to keep at least one property (Peninsula) in a three-way trade with the likes of Galaxy perhaps grabbing the second (Cotai).”