Melco Crown mulls $1b buyout of Studio City minority partners

TAGs: Macau, Melco Crown Entertainment, Studio City

melco-crown-studio-city-buyoutCasino operator Melco Crown Entertainment (MCE) is mulling a $1b buyout of its hedge fund partners in the new Studio City resort in Macau.

MCE delivered its Q4 and FY15 earnings report on Thursday, which showed Q4 revenue falling 6% to $1.06b while earnings fell 15% to $236.4m, resulting in a net loss of $12.3m compared to a $93m profit in Q4 2014. For the year as a whole, MCE’s revenue fell one-sixth to $4b while profits fell to $105.7m from $608.3m in 2014.

MCE CEO Lawrence Ho (pictured) praised his company’s ability to withstand the “still challenging” environment in Macau and while MCE didn’t declare a dividend in Q4, Ho announced a special dividend of $350m as a way of demonstrating the company’s “impressive cash flow generation” and “strong balance sheet.”

MCE’s new Studio City resort, which opened in Macau at the end of October, reported revenue of $123.2m and earnings of $12.6m. The property famously opened with no VIP tables, but boasted mass market table drop of $385.3m, gaming machine handle of $265m and non-gaming revenue of $37.8m.

MCE’s flagship City of Dreams property saw revenue fell one-quarter to $669m as VIP turnover slipped 43% and mass table drop dipped 7%. Altira Macau suffered similar downturns in VIP and mass, pushing revenue down 18% to $142m. The Mocha Clubs slots business was down 2% to $32m.

In the Philippines, City of Dreams Manila reported revenue of $81m. The property was only open for two weeks in December 2014, but the Q4 2015 number is down nearly $11m from the third quarter, in part to a 2.1% VIP win rate, well below the 2.7%–3% theoretical win range. Ho said MCE remains confident about the property’s long-term future.

On the analyst call, Ho said the company had posted “decent” numbers in both VIP and mass during the Lunar New Year holiday period, although VIP was down from the previous year.

Ho said the company had been talking up Macau’s “stabilization” for the past two quarters but there was still no “hockey stick recovery” in sight. Ho suggested the company would continue to “grind it out” through the second half of 2016 until the year-on-year comparisons got easier.

Ho said it was “no secret” that MCE would love to buy out its Studio City hedge fund partners Silver Point Capital and Oaktree Capital Management, which hold a combined 40% stake in the resort. Bernstein Research estimates this could cost MCE around $1b.

Ho stressed that any buyout would depend on valuation and the “need to be fair” to MCE shareholders. Ho said he couldn’t guarantee any progress would be made on this front anytime soon but “if there’s a conversation to be had with the minority shareholders at Studio City, we’re always happy to have it.”


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