Wynn vs. Okada: Payback Time

Looks like Kazuo Okada brought a knife to a gunfight with Steve Wynn. The latter has spent the last year having former FBI boss Louis Freeh and sundry investigators check up on Okada — and what a lot of dirt did Freeh’s sleuths find. Allegedly, Okada was showering state-run Philippines Amusement & Gaming Corp. (PAGCOR) and other officials  with gratuities here and there, from South Korea to Las Vegas, and even disclosed the palm-greasing to fellow Wynn Resorts directors. (Government corruption in the Philippines? Noooooooooooooooo!) Wynn board member — and former Nevada governor — Bob Miller proclaimed himself “deeply disturbed” by Okada’s trail of largesse. It can’t have come as too much of a shock, however, since top Filipino gaming regulator Cristino Naguiat stayed at Wynn Macau two years ago on Okada’s dime. Nagiuat’s excuse? “[T]o learn more about the casino business.” Yes, you see, first you become a regulator and only then do you figure out what the hell you’re regulating …

Naguiat himself passed the buck to “previous management” while raising the — distant and unlikely — possibility that Okada’s Filipino gaming license could get nixed. (Does anyone still wonder why American casino companies give the Philippines a wide berth?)

As his company’s stock took a dive, Okada responded by calling the PAGCOR flap a big misunderstanding and the 12-month internal probe “rushed.” (PAGCOR also denies any improper conduct on its part.) But it’s obviously a carefully orchestrated internal coup. The Freeh report’s findings give Wynn Resorts the bylaw justification it needs to forcibly liquidate Okada’s ownership stake. The buyout is being financed with a $1.9 billion IOU (plus 2% interest) and Okada can’t collect until 2022. It furthermore gives Wynn cover for taking back the shares at a “fair value” that happens to be a 31% discount to where they are currently trading. This preemptive strike is fortuitously timed to strip Okada of his voting bloc just when he’s trying to install four directors of his own choosing on the Wynn board. Instead, shareholders will be voting on whether or not to axe Okada, which will require a two-thirds majority. Of course, Okada has already announced a countersuit, so a fifth of all WYNN shares could be tied up in litigation for months, if not years of what the Financial Times calls “mud wrestling.”

Other shareholders come out ahead, as their stakes immediately gain value. Deutsche Bank‘s Carlo Santarelli hiked his price target for Wynn Resorts from $148 to $165/share. However, he adds that future special dividends are unlikely, given the amount of money that will be borrowed for the Okada buyout.

Regardless of who’s in the right here, the fact remains that Okada’s questionable payments are dwarfed by Wynn’s $135 million bequest to the University of Macau. Also, alleging that a board member violated the Foreign Corrupt Practices Act could very well ratchet up the current SEC probe of Wynn’s overseas generosity from “informal” to serious business. El Steve also looks either foolish or hypocritical for having vouched for Okada with Nevada regulators eight years ago, let alone allowing him “to refuse to sign the Company’s Code of Conduct or participate in mandatory Foreign Corrupt Practices Act training for directors,” in Wynn’s own words. However, by going public with what he’s dug up on his former ‘bromantic’ partner, Wynn also gives himself cover should the Nevada Gaming Control Board open a drowsy eye and take an interest in Okada’s alleged malfeasance. It’s harder to fine a company that blows the whistle on itself.

The biggest question of all, however, is what does this mean for Wynn’s expansion plans? Newly encumbered with nearly $2 billion in additional debt, it’s suddenly very questionable whether little Wynncores will be springing up in Massachusetts, Florida, Japan or just about anywhere else that isn’t named “Macao.” Right now, Wynn’s probable victory looks Pyhrric.

Speaking of coups … With its misspelled “Declartion [sic] of Participation” and pompous pronouncements that participating in democracy “is a privilege, not a right,” the Nevada GOP’s Special Sheldon Adelson Supplementary Caucus is a farcical gift that keeps on giving.

Too much, too soon? When it tried to rush the market with promises of a quickly built, temporary casino, Genting Bhd. raised the ante one chip too high for Florida‘s taste. Now it’s on the hook for a large parcel of Miami land and a pledge to build a hotel on it, regardless of how casino-expansion legislation went. Another lesson learned by Genting bigwig Colin Au: Don’t use profanity when testifying before the Florida Lege. It tends not to go over well. Oh, and don’t have to walk back your own press releases … or wait two months to do it. But if you take the long view — as MGM Resorts International does, even if Las Vegas Sands does not — Genting moved the ball forward. And because it’s sitting on a big, real estate fait accompli, the prospect of a Vegas-style casino in Miami has now taken on tangible form.