For shareholders, observers, government officials, and the general public all over the world, the Wynn Resorts (WYNN) - Kazuo Okada dispute is probably going to last a good long while, so there's plenty of time to get your popcorn, beverages, and any other refreshments needed to make yourself comfortable while watching the drama unfold.
If you are unfamiliar with what has previously transpired between Wynn Resorts and Mr. Okada, let me briefly summarize the events up to this point. Okada was partners with Steve Wynn since Wynn Resorts went public, and owned a 20% stake in the stock through restricted shares. On January 12, 2012, Okada challenged Wynn Resorts and wanted access to company financial records. Wynn Resorts responded on February 19,2012, with allegations of bribery charges to foreign government officials in the Phillippines.
At a board meeting on February 21, 2012, Wynn Resorts declared it would retire Okada's shares for $1.9 billion and issue a 10 year promissory note yielding a 2% annualized interest rate to redeem the restricted stock. Wynn Resorts is incorporated in the state of Nevada and regulated by the SEC.
If you are a Wynn Resorts shareholder or an interested bystander, you have only heard one side of the story-- and that is from Wynn Resorts. Mr. Okada has access to resources as well, as he is the chairman of Universal Entertainment Corporation (OTC:UETMF), and has publicly stated that he will take legal action to reverse Wynn Resort's actions. What I find interesting is to consider the possible implications of the dispute from a range of different perspectives.
First, one should expect an investigation by the Nevada Gaming Commission into what transpired between the two parties, and a ruling on how the matter is going to be decided. The Nevada Gaming Commission has been the chief regulator for gaming companies controlled by Steve Wynn for over 25 years and is very familiar with his operations.
Next, the Securities and Exchange Commission and U.S. Department of Justice will probably investigate the details of the dispute, including all allegations of bribery. In addition, the manner which Mr. Okada's shares were retired will most likely be looked into. Mr. Okada will probably file lawsuits against Wynn Resorts and Steve Wynn to reverse the $1.9 billion dollar redemption of his stock. Furthermore, lawsuits regarding slander and anti-competitive practices may well be initiated.
Maybe the most fascinating aspect of the fight is how foreign jurisdictions will see the controversy, and which party is correct or has been harmed. In the Phillippines, government officials have been alleged to have been indirectly bribed, and it could affect Mr. Okada's attempts to build a new casino and resort in that country.
For Wynn shareholders, of particular importance is how the dispute affects current operations in Macau. The operations in China represent almost 75% of total operating profits for Wynn Resorts, so any kind of government action which could impede the day to day performance there is a material concern. One can only imagine how government officials in China view the public airing of dirty laundry, but certainly it cannot be considered a good thing for Wynn Resorts. (Click here for Earnings Call Transcript)
Another consideration is how the disagreement affects new licensing opportunities in the future for Wynn Resorts. At the very least, any government entity considering new applications is not going to look favorably on an applicant which has issues with its own partners. As a result, it could affect the growth rate of Wynn Resorts going forward.
Finally, in terms of corporate governance, shareholders of Steve Wynn have benefited for 25 years from his success as a good operator of gaming resorts. At the same time, if Mr. Wynn and the Wynn Resorts board is willing to buy out a 20% owner at a 30% discount to market value, any shareholder must understand that Steve Wynn runs his company the way he wants to, whether that corresponds with good corporate governance or not.