CBRE analyst John DeCree, in a report to investors, explains why he thinks Tilman Ferttita isn’t trying to make a play to take over Wynn Resorts Ltd.
A Las Vegas-based gaming industry analyst doesn’t think Houston billionaire Tilman Fertitta will make a play to take over Wynn Resorts Ltd.
John DeCree, an analyst with CBRE Equity Research, explained four possibilities why Fertitta increased his share holdings to 9.9 percent and became the shareholder with the most ownership in a Friday report to investors.
Fertitta’s acquisition of shares Wednesday bringing his total to around 10.9 million, surpassing previous largest owner Elaine Wynn, was reported in a Wynn Securities and Exchange Commission filing Thursday. Fertitta, a cousin to Station Casinos owners Frank and Lorenzo Fertitta, is chairman, CEO and owner of the Landry’s Inc. restaurant chain, the Golden Nugget casino franchise and the National Basketball Association’s Houston Rockets. He’s also building an as-yet-unnamed 43-story, 2,420-room resort on 6.2 acres on the southeast corner of Las Vegas Boulevard and Harmon Avenue.
The SEC disclosure boosted Wynn stock value by more than 8.6 percent in Thursday trading. On Friday, shares fell 2.4 percent, or $2.23, to close at $90.74 a share.
‘A fundamental investment’
“Although this looks like fundamental investment, and we struggle to immediately see any unique strategic alternatives Fertitta could bring to the table, media quickly speculated he could become active sooner than later,” DeCree said in his report.
“Some of the ideas that surfaced include a strategic merger with Landry’s-Golden Nugget, monetizing the Wynn real estate, exiting Macao, or expanding the Wynn brand across the U.S.,” he wrote. “We explore some of these concepts in this report, but if Fertitta were to make a move, it would likely need to be an outright bid for the company given the complexities of the board and fragmented shareholder base that would make a proxy fight difficult.”
DeCree, who has given Wynn a “buy” rating and a price target of $145 a share, said there are four things that may be at play for Fertitta, who has not publicly discussed the reasoning of his recent acquisition.
Restaurant chain takeovers
DeCree said he is not surprised by speculation that Fertitta may be considering a takeover bid, considering that’s how Landry’s acquired Morton’s Restaurant Group and McCormick & Schmick’s, both of which started with SEC filings on stock acquisition and culminated in full takeovers.
DeCree’s analysis:
-Merging Wynn with Landry’s and Golden Nugget. He questions the strategy. “It could dilute the value of Wynn’s luxury brand appeal,” he wrote. “Wynn is probably a brand which shouldn’t be replicated en masse at the risk of diminishing its exclusive draw. The company is already selectively expanding in key U.S. markets, like Boston and potentially New York. Given the importance of the design and development standards for Wynn, an asset-light branded or managed non-gaming hotel strategy might not be that accretive or move the needle.”
-All-cash offer unlikely. DeCree said Fertitta made a similar play for Caesars Entertainment years ago and that didn’t work. “Given Wynn’s corporate governance typically requires supermajority vote for most board-transformative decisions, any successful attempt for control would probably need to be via acquisition rather than proxy. We are not convinced Wynn’s shareholders would easily buy in to the synergy story between Wynn and Golden Nugget, at least not without a significant upfront cash consideration.” That could mean Wynn selling assets, an unlikely scenario considering Wynn entering the United Arab Emirates market and potentially New York. He doesn’t think there’d be any appetite to exiting or selling down Macao.
-Not much to do operationally. “While we recognize Wynn shares remain undervalued, we see little opportunity to add incremental value from an operational perspective,” he wrote. “Las Vegas is generating record levels of revenue and cash flow and remains strong even as year-over-year comparisons get increasingly harder. Market share in Macao has remained stable despite the onslaught of new competition and unfavorable economic conditions in China.”
-A solid investment. For now, DeCree views Fertitta’s interest in Wynn as a prudent investment. “If Fertitta would make a play for the company, we would be shocked if he were uncontested. We suspect numerous suitors would come out of the woodwork. However, Fertitta has positioned himself at the head of the negotiating table as the largest shareholder of the company. For now, we view his stake in the company as a fundamental investment in an undervalued company with generational assets that will endure economic cycles.”
