Wynn's Okada Buyout Is a Big Governance Gamble
By DUNCAN MAVIN
Wall Street Journal
FEBRUARY 20, 2012, 10:02 A.M. ET
Steve Wynn says he doesn't personally like to gamble. The forced buyout of Wynn Resorts Ltd.'s biggest shareholder at a discount looks like a bet that investors will overlook the governance implications of the move.
Shares of Wynn's Hong Kong-listed subsidiary Wynn Macau rose 3% on Monday, suggesting the decision to force out Kazuo Okada may pay off.
The company alleges that an internal investigation found Mr. Okada made improper payments to gambling regulators in the Philippines. Investors will look kindly on steps to clean house. (Mr. Okada fired back at the company Monday, saying he would take legal action to block the board's "outrageous" action.)
But there is cause for concern. First, the Japanese pachinko-parlor tycoon has been with Wynn since 2000, funding the development of the first Wynn Resorts casino in Las Vegas to the tune of $380 million and taking a seat on the board in 2002. He holds 19.66% of the shares, about twice Mr. Wynn's stake.
But the two sides fell out recently over the company's $135 million pledge to the University of Macau, which Mr. Okada doesn't support. The latest development airs more dirty laundry in public and doesn't reflect well on Wynn. A costly and difficult legal tangle is sure to ensue.
The details of Mr. Okada's ouster are more significant. The company bought back his $2.77 billion stake for a promise to pay $1.9 billion in 10 years. Wynn's explanation for the discount is that the shares were restricted under the terms of a shareholder agreement.
Buying a large chunk of stock at 30% below the market price, even before any time value is factored in, looks like a cheap share buyback. But other investors must be wondering what value Wynn places on their shares, too.
Write to Duncan Mavin at duncan.mavin@wsj.com
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