Wynn Resorts Ltd.is negotiating to purchase the Crown Resorts Ltd. owned by Australian billionaire James Packer for A$9.99 billion as the Las Vegas casino empire expands its operations in Asia amid the declining gambling business in Macau.
The proposed deal values Crown at A$14.75 per share which is 26 percent higher than its closing price on Monday. In the deal will permit Packer to divest his single largest asset to complete a remarkable corporate retreat for a tycoon after he suffered from political troubled and mental health issues recently.
Crown shares climbed 19.7 percent to close at A$14.05 after they confirmed the confidential discussions. The rival of Crown in Australia, Star Entertainment Group Ltd. rose 5.4 percent while the shares of Skycity, a New Zealand-based casino, increased 2 percent.
The investment of Wynn in Crown, which is solely focused on the domestic market where big-time gamblers have become more elusive, is considered unusual.
It is said to be desperately seeking to expand its operations in Asia. Wynn operates only in Macau and its expansion is approaching its limits.
Many of the competitors of the company already operating in Asia. According to reports, the gambling industry competes for an operating license in Japan which is known as the region's next gambling goldmine.
Margaret Huang, Bloomberg Intelligence Asia gaming analyst, said that Wynn's pursuit of Crown represents the need for Macau operators to expand in other markets to support long-term profit growth.
However, it is believed that the deal will siphon off cash from the company. The estimated cost of building a Japanese resort is around $10 billion. The analyst said that the current weakened gaming demand in Australia is concerning.
John Decree, Union Gaming Group LLC analyst, said that the acquisition was likely a defensive move on Wynn's part in order that it does not become a takeover target for rivals like Las Vegas Sands or MGM Resorts International.
He wrote in a note on Tuesday that not only would a larger enterprise be a more difficult target, but it would deter potential suitors as U.S.-based peers have little to no strategic interest in Australia.
In a statement, Crown said that the negotiations are at a preliminary stage and they have not yet reached an agreement in terms of structure, value or terms of a transaction.
The company added that it is not certain whether the discussions result in a transaction. The spokesman from Wynn declined to comment on the detail of the talks with Crown.
