With casino mogul Steve Wynn stepping down from his position of chief executive at Wynn Resorts Ltd (WYNN) —in the wake of sexual harassment allegations—questions have emerged about the future of the $18 billion hotel empire that bears his name.
That's why TheStreet's sister publication, The Deal, believes it is a real possibility that an activist investor could step in and seek to break up the chain of resorts. Activists often attempt to divide up undervalued businesses to extract share-price value, and that might be something an insurgent fund manager seeks at Wynn Resorts, whose shares have plummeted from about $200 a share to as low as $163 a share on the news, before recovering somewhat.
In a note, Jefferies analysts argued that Wynn's value to the company is "unarguably profound as its chief visionary and diplomat." With him gone, the chain is rudderless and could become vulnerable to an activist seeking to break up the business.
In a note, the Jefferies analysts contend that a sale of the business as a whole or in pieces could produce a sum-of-the-parts valuation of about $201 a share, significantly more than its recent share price of $172.14 a share.
It is possible that the Wynn resorts could be sold in pieces, in part, because a hotel and casino operator might want to pay more to get into one of the Wynn markets—Boston, Nevada or its Chinese unit, Macau—but not all.
For example, one analyst following the situation suggested that an activist could pressure Wynn Resorts to sell off its multi-billion-dollar Wynn Boston Harbor development project separately, a large resort set to open next year. He added that Mohegan Sun, a Connecticut casino, or Foxwoods Resort Casino, a hotel and casino complex, both based in Connecticut, could be interested in buying the Wynn Boston development.
He added that a potential buyer could be interested in accessing the Macau market but have no interest in Boston or Las Vegas and that bidders may be willing to pay significantly more than the resorts there - Wynn Macau and Wynn Palace -- are worth because the acquisition of marquee casinos have a "trophy-like" quality to them. The Macau operations, nevertheless, represent the majority of the adjusted earnings of Wynn Resorts.
"Some Asian entities might not care about how much EBITDA the Macau operation does, but they may want to own it because it has a trophy-like quality to them," he said.
However, there are complications to an activist strategy. Steve Wynn's controls roughly a fifth of the company's shares, and he could be a major obstacle to an activist foray if he wants to keep the businesses intact and under his name. Wynn and his ex-wife, Elaine Wynn, control 11.8% and 9.28% of the chain, respectively. But an agreement she had signed with Steve gives him the right to vote her stake.
Also, the analyst added that an activist that seeks to effect change at Wynn Resorts might come up against trouble with the regulatory structure around the company's Macau operations, which he described as opaque. He added that as a result, it would be difficult to shake up the management team there.
The Chinese unit of Wynn resorts recently reshuffled its executive team, with Matt Maddox, a Wynn executive being put in charge of Wynn Resorts and Wynn Macau. Allan Zeman, a Hong Kong tycoon, will reportedly become non-executive chairman of Wynn Macau.