Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<p>Back on the 29 April 2020, <a href="https://www.smartkarma.com/entities/melco-international-development-ltd" target="_blank" data-smartkarma-citation="entities:809:1" rel="noopener">Melco International Development (200 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0429/2020042900625.pdf" target="_blank" rel="noopener">announced</a> <a href="https://www.smartkarma.com/entities/melco-crown-entertainme-adr" target="_blank" data-smartkarma-citation="entities:810:1" rel="noopener">Melco Resorts &amp; Entertainment (MLCO US)</a> had sold its 9.99% stake in <a href="https://www.smartkarma.com/entities/crown-resorts-ltd" target="_blank" data-smartkarma-citation="entities:808:1" rel="noopener">Crown Resorts (CWN AU)</a> to Blackstone.</p>
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<p>A brief recap of recent events leading to this sale:</p>
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<h2>Date</h2>
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<h2>Data in the Date</h2>
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<td style="width: 105.734px;">9-Apr-19</td>
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<p><a href="https://www.asx.com.au/asxpdf/20190409/pdf/4445cxw9qtdqsv.pdf" target="_blank" rel="noopener">Crown Resorts (CWN AU) announced</a> it is in confidential discussions with <a href="https://www.smartkarma.com/entities/606" target="_blank" data-smartkarma-citation="entities:606:1" rel="noopener">Wynn Resorts (WYNN US)</a> concerning an acquisition of Crown by way of a Scheme. The announcement states that Wynn has approached Crown on more than one occasion.</p>
<p></p>
<p>WYNN confirmed it and released an <a href="https://wynnresortslimited.gcs-web.com/static-files/78ae4df4-3d63-4f65-b21a-58a4f4d11469" target="_blank" rel="noopener">8K</a> in the early hours of the 9th saying they would not comment further.</p>
<p>Several hours later, WYNN apparently said it was terminating deal talks with Crown because of the "premature disclosure of preliminary discussions".</p>
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</tr>
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<td style="width: 105.734px;">30-May-19</td>
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<p>Melco <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0530/ltn201905301127.pdf" target="_blank" rel="noopener">announced</a> an intention to acquire 19.99% in Crown from James Packer,  in a transaction spread across two tranches. The first tranche was completed on the 6 June.</p>
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<td style="width: 105.734px;">8-Aug-19</td>
<td style="width: 597.798px;">
<p>Crown <a href="https://www.asx.com.au/asxpdf/20190808/pdf/447bdl046231kq.pdf" target="_blank" rel="noopener">announced</a> the NSW Independent Liquor and Gaming Authority would be conducting an inquiry, under section 143 of the <a href="https://www.legislation.nsw.gov.au/#/view/act/1992/15/part10/sec143" target="_blank" rel="noopener">Casino Control Act 1992 (NSW)</a>. On the 28 August, Crown and MLCO <a href="https://www.asx.com.au/asxpdf/20190829/pdf/447zqp91kz1r5l.pdf" target="_blank" rel="noopener">amended</a> the share sale agreement, which effectively put on hold the sale of the second tranche until the inquiry was completed satisfactorily.<br><br></p>
<p>The inquiry was predicated on reports of money laundering at Crown casinos and organised crime involved in running junkets. Crown had previously <a href="https://www.asx.com.au/asxpdf/20190730/pdf/4470lbwt6dd5s4.pdf" target="_blank" rel="noopener">announced</a> it would fully co-operate with any investigation, and that it had a comprehensive anti-money laundering and counter-terrorism financing program.</p>
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<td style="width: 105.734px;">6-Feb-20</td>
<td style="width: 597.798px;">
<p>Melco/MLCO <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0206/2020020601305.pdf" target="_blank" rel="noopener">announced</a> it had terminated its obligation to purchase an additional 9.99% of Crown. MLCO said: "that due to the impact of the coronavirus epidemic, including the severe drop in tourism in Asia to integrated resort facilities in the region, and the recent decision by the government of the Macau Special Administrative Region of the People's Republic of China to close all casinos in Macau, Melco Resorts has taken the decision to reassess all non-core investments to be made in 2020."</p>
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<td style="width: 105.734px;">29-Apr-20</td>
<td style="width: 597.798px;">Blackstone <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0429/2020042900625.pdf" target="_blank" rel="noopener">acquires</a> MCLO's 9.99% stake in Crown</td>
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</tbody>
</table>
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<p>Blackstone paid $551.55mn for the 67.675mn shares in Crown, or A$8.15/share, a 2.37% discount to the average closing price of A$8.348 over the preceding five days. MLCO paid A$13/share back in June the previous year.  9.99% confers a passive stake, with no board seat.  Media reports were that Blackstone's acquisition was opportunistic in nature, and that they had no plans to increase their stake.</p>
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<div>
<p>"<em>For now, maybe</em>" was my assessment at the time, and that once the casino inquiry completed, and taking the view Crown remained on as the licensee, Blackstone would make its move. </p>
<p>Fast forward to the 9 February this year when the NSW Independent Liquor and Gaming Authority (ILGA) found that Crown – through its subsidiary Crown Sydney Gaming – was not suitable to hold the licence for the second Sydney casino at Barangaroo.</p>
<p>Some of the more damning conclusions in the extensive 18-month inquiry (encompassing 768 pages over two volumes - <a href="https://www.parliament.nsw.gov.au/tp/files/79129/Volume%201%20-%20Inquiry%20under%20section%20143%20of%20the%20Casino%20Control%20Act%201992.pdf" target="_blank" rel="noopener">here</a> &amp; <a href="https://www.parliament.nsw.gov.au/tp/files/79129/Volume%202%20-%20Inquiry%20under%20section%20143%20of%20the%20Casino%20Control%20Act%201992.pdf" target="_blank" rel="noopener">here</a>) concerned the facilitation of money laundering and the enabling of criminals to infiltrate the Melbourne and Perth casinos. </p>
<p>Subsequent to the ILGA report, five directors and CEO <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02341002-3A561139?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">Ken Barton</a> resigned.</p>
<h3>The New News</h3>
<div>Crown <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02355769-3A563928?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> today it has received an unsolicited, non-binding and indicative takeover <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02355769-3A563928?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">proposal</a>, by way of a Scheme, from Blackstone, at $11.85/share - a 19% premium to the average price of Crown's shares since the release of its <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02342917-3A561577?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">1H21 results</a>.</div>
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<div></div>
<div>The Offer is subject to a raft of conditions including "<em>regulatory confirmation that a Blackstone-owned Crown is </em><em>considered suitable to own and operate the Sydney, Melbourne, and Perth casino licences</em>".</div>
<div></div>
<div>
<p>More below the fold. </p>
</div>


Back on the 29 April 2020, Melco International Development (200 HK) announced Melco Resorts &amp; Entertainment (MLCO US) had sold its 9.99% stake in Crown Resorts (CWN AU) to Blackstone.


A brief recap of recent events leading to this sale:







Date


Data in the Date



9-Apr-19

Crown Resorts (CWN AU) announced it is in confidential discussions with Wynn Resorts (WYNN US) concerning an acquisition of Crown by way of a Scheme. The announcement states that Wynn has approached Crown on more than one occasion.

WYNN confirmed it and released an 8K in the early hours of the 9th saying they would not comment further.
Several hours later, WYNN apparently said it was terminating deal talks with Crown because of the "premature disclosure of preliminary discussions".



30-May-19

Melco announced an intention to acquire 19.99% in Crown from James Packer,  in a transaction spread across two tranches. The first tranche was completed on the 6 June.



8-Aug-19

Crown announced the NSW Independent Liquor and Gaming Authority would be conducting an inquiry, under section 143 of the Casino Control Act 1992 (NSW). On the 28 August, Crown and MLCO amended the share sale agreement, which effectively put on hold the sale of the second tranche until the inquiry was completed satisfactorily.  
The inquiry was predicated on reports of money laundering at Crown casinos and organised crime involved in running junkets. Crown had previously announced it would fully co-operate with any investigation, and that it had a comprehensive anti-money laundering and counter-terrorism financing program.



6-Feb-20

Melco/MLCO announced it had terminated its obligation to purchase an additional 9.99% of Crown. MLCO said: "that due to the impact of the coronavirus epidemic, including the severe drop in tourism in Asia to integrated resort facilities in the region, and the recent decision by the government of the Macau Special Administrative Region of the People's Republic of China to close all casinos in Macau, Melco Resorts has taken the decision to reassess all non-core investments to be made in 2020."



29-Apr-20
Blackstone acquires MCLO's 9.99% stake in Crown






Blackstone paid $551.55mn for the 67.675mn shares in Crown, or A$8.15/share, a 2.37% discount to the average closing price of A$8.348 over the preceding five days. MLCO paid A$13/share back in June the previous year.  9.99% confers a passive stake, with no board seat.  Media reports were that Blackstone's acquisition was opportunistic in nature, and that they had no plans to increase their stake.


"For now, maybe" was my assessment at the time, and that once the casino inquiry completed, and taking the view Crown remained on as the licensee, Blackstone would make its move. 
Fast forward to the 9 February this year when the NSW Independent Liquor and Gaming Authority (ILGA) found that Crown – through its subsidiary Crown Sydney Gaming – was not suitable to hold the licence for the second Sydney casino at Barangaroo.
Some of the more damning conclusions in the extensive 18-month inquiry (encompassing 768 pages over two volumes - here &amp; here) concerned the facilitation of money laundering and the enabling of criminals to infiltrate the Melbourne and Perth casinos. 
Subsequent to the ILGA report, five directors and CEO Ken Barton resigned.
The New News
Crown announced today it has received an unsolicited, non-binding and indicative takeover proposal, by way of a Scheme, from Blackstone, at $11.85/share - a 19% premium to the average price of Crown's shares since the release of its 1H21 results.


The Offer is subject to a raft of conditions including "regulatory confirmation that a Blackstone-owned Crown is considered suitable to own and operate the Sydney, Melbourne, and Perth casino licences".


More below the fold. 


Crown Resorts (CWN AU): Blackstone Rolls the Dice

Equity Bottom-Up

Melco International Development / Equity Bottom-Up

<div>
<p>This week in StubWorld ...</p>
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<p><a href="https://www.smartkarma.com/entities/melco-international-development-ltd" target="_blank" data-smartkarma-citation="entities:809:1" rel="noopener">Melco International Development (200 HK)</a>'s underperformance against 56.8% held <a href="https://www.smartkarma.com/entities/melco-crown-entertainme-adr" target="_blank" data-smartkarma-citation="entities:810:1" rel="noopener">Melco Resorts &amp; Entertainment (MLCO US)</a> sees an all-time low NAV discount and implied stub; and the simple ratio (Melco/MLCO) is around its lowest level since Melco took majority control in the Macau gaming play.</p>
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<p>Preceding my comments on Melco and xx are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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<p>As always, more below the fold.</p>
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This week in StubWorld ...




Melco International Development (200 HK)'s underperformance against 56.8% held Melco Resorts &amp; Entertainment (MLCO US) sees an all-time low NAV discount and implied stub; and the simple ratio (Melco/MLCO) is around its lowest level since Melco took majority control in the Macau gaming play.




Preceding my comments on Melco and xx are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.

As always, more below the fold.


StubWorld: Melco's All-Time Low As Macau Stocks Lag Las Vegas Plays

Last Week in Event SPACE: Kerry Logistics, Sanken Electric, Vocus Comms, Toa Oil, ThaiBev, Sharp

<div>
<p>A double-dose of StubWorld this week ...</p>
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<div class="content-highlight">
<p><a href="https://www.smartkarma.com/entities/wynn-resorts-ltd" target="_blank" data-smartkarma-citation="entities:606:1" rel="noopener">Wynn Resorts (WYNN US)</a> six-month outperformance versus 72%-held <a href="https://www.smartkarma.com/entities/wynn-macau-ltd" target="_blank" data-smartkarma-citation="entities:473:1" rel="noopener">Wynn Macau Ltd (1128 HK)</a> pitches the current share price at a premium to its NAV.</p>
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</div>
<div>
<p>Preceding my comments on Wynn are the updated setup/unwind tables for Asia-Pacific Holdcos.</p>
</div>
<div>
<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
</div>
<div>
<p>As always, more below the fold.</p>
</div>


A double-dose of StubWorld this week ...



Wynn Resorts (WYNN US) six-month outperformance versus 72%-held Wynn Macau Ltd (1128 HK) pitches the current share price at a premium to its NAV.



Preceding my comments on Wynn are the updated setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


As always, more below the fold.


StubWorld: Wynn Trading At A Premium To NAV

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

<p>Current investment levels in Macau Gaming stocks are low compared to history across all of our ownership measures.  Declines that started in 2014 were accentuated by the COVID crisis, as EM funds repositioned in to safer corners of the market.  From a positioning perspective, this leaves plenty of upside should a change in sentiment occur.  Active EM exposure is now close to a 10-year low, there are many previous investors sitting on the sidelines and current investors are far from overstretched.</p><p>At present though, EM investors bullish on the fundamental case for Macau Gaming stocks should be aware that this is largely an anti-consensus view.  74% of EM active funds do not have exposure and neither does the benchmark MSCI Emerging Markets index.  If it does pays off, it will provide valuable outperformance against both the benchmark and the active peer group in the year to come.  </p><p><em>The analysis looks at the collective allocations in Macau Gaming stocks from a pool of 243 actively managed Global Emerging Market funds, with combined AUM of $460bn,</em></p>

Current investment levels in Macau Gaming stocks are low compared to history across all of our ownership measures.  Declines that started in 2014 were accentuated by the COVID crisis, as EM funds repositioned in to safer corners of the market.  From a positioning perspective, this leaves plenty of upside should a change in sentiment occur.  Active EM exposure is now close to a 10-year low, there are many previous investors sitting on the sidelines and current investors are far from overstretched.At present though, EM investors bullish on the fundamental case for Macau Gaming stocks should be aware that this is largely an anti-consensus view.  74% of EM active funds do not have exposure and neither does the benchmark MSCI Emerging Markets index.  If it does pays off, it will provide valuable outperformance against both the benchmark and the active peer group in the year to come.  The analysis looks at the collective allocations in Macau Gaming stocks from a pool of 243 actively managed Global Emerging Market funds, with combined AUM of $460bn,

Macau Gaming:  Beaten up Sector Has Potential to Reverse

United States

Wynn Resorts, Limited owns and operates luxury hotels and destination casino resorts in Las Vegas, Nevada, Macau, and China. The Company offers amenities such as guest rooms and suites, restaurants, golf course, and an on-site luxury automotive dealership.

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Wynn Resorts (WYNN US)

Crown Resorts (CWN AU): Blackstone Rolls the Dice

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StubWorld: Melco's All-Time Low As Macau Stocks Lag Las Vegas Plays

Melco is a set-up here - go Long Melco and Short MLCO. Even taking the view that sentiment/growth for casino stocks is better in the US than in...

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Last Week in Event SPACE: Kerry Logistics, Sanken Electric, Vocus Comms, Toa Oil, ThaiBev, Sharp

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StubWorld: Wynn Trading At A Premium To NAV

Geographic exposure will be key in post-COVID recovery. My forward bet lies with Asia-Pacific gaming stocks - especially in Macau - to outperform...

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Macau Gaming: Beaten up Sector Has Potential to Reverse

As sentiment begins to turn in Macau Gaming stocks, Global EM investors are positioned at their lowest levels in a decade.

Steven Holden

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