Crown Resorts cuts stake in Melco Crown JV, putting Lawrence Ho in driver’s seat

crown-resorts-cuts-melco-crown-entertainment-stakeAustralian casino operator Crown Resorts has reduced its stake in its Asian-facing casino joint venture Melco Crown Entertainment (MCE), leaving Melco International Development boss Lawrence Ho as MCE’s single largest shareholder.

On Wednesday, MCE announced it had agreed to repurchase 155m ordinary shares from Crown for a total consideration of just under $801m. The transaction reduces Crown’s share of MCE from 34.3% to 27.4%, while Melco International’s stake will rise from 34.3% to 37.9% and the publicly held share will increase to 34.7%.

Crown boss James Packer will resign as MCE co-chairman and take a deputy chairman position on MCE’s board of directors, while Crown exec VP Todd Nisbet will resign his MCE directorship. Ho will serve as MCE’s sole chairman, while the reconstituted board will consist of three Melco International nominees, two Crown nominees and four independent directors.

Crown chairman Rob Rankin said the transaction formed part of his company’s “ongoing capital management strategy.” Crown has a number of high-profile casino development projects in the pipeline, including the Alon Las Vegas project, for which Crown was reportedly having trouble raising the necessary funds. Crown was also recently hit with an unexpected $362m back tax bill, which the company is contesting.

Melco Crown operates casinos in both Macau and Manila, and the Macau market’s 23-months-and-counting slump has weighed heavily on Crown’s earnings reports.

News of Crown’s selloff came the same day that MCE announced its Q1 earnings results, which showed revenue up but profits down in the three months ending March 31.

Total revenue rose 5% to $1.1b thanks to last October’s opening of the Studio City resort in Macau and last February’s launch of VIP gambling action at the new City of Dreams Manila property. However, these gains were offset by falling VIP turnover and mass market revenue at MCE’s other Macau properties.

MCE’s overall adjusted earnings were down 2% year-on-year to $248.8m while net income fell 34% to $39.8m, in part due to costs associated with bringing the new properties to market.

The original City of Dreams, MCE’s flagship property in Macau, reported VIP turnover down 27%, while mass market table drop fell 10.4%. Altira Macau’s VIP and mass table numbers were off 37% and 15%, respectively.

Studio City has neither VIP tables nor year-on-year comparisons to make, but the property reported revenue of $178.7m – up from $123.2m in Q4, although it was only open for two months last year – as mass table drop hit $547m and gaming machine handle neared $410m.

City of Dreams Manila reported revenue of $95.4m, with VIP turnover of $1.5b, mass table drop of $120m and gaming machine handle of $451m.

Ho said MCE’s Q1 figures “demonstrated the resilient nature” of Macau’s mass market and the company’s commitment to cost-cutting. Ho credited the latter effort for keeping earnings relatively flat year-on-year despite Macau’s well-publicized struggles.