Melco Resorts & Entertainment should pass a recently announced inquiry into its acquisition of a 19.99% stake in Australia’s Crown Resorts, paving the way for the Asian IR operator to pursue controlling or even full ownership, according to brokerage Sanford C Bernstein.
The inquiry, to be conducted by the NSW Independent Liquor & Gaming Authority under the NSW Casino Control Act, was called following recent reports by Australian media outlets alleging links between Crown and Asian crime syndicates and questioning the company’s relationship with junket operators. Those reports also highlighted the fact that Melco Chairman and CEO Lawrence Ho is the son of Macau casino magnate Stanley Ho, with whom Crown is prohibited from conducting any business as per a 2014 agreement with the NSW regulator.
In a research note published early Wednesday morning, Bernstein analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu said that while the “sensationalistic” nature of the news reports presented a risk that Melco’s acquisition could be denied, “this would be unfortunate for both Melco and Australia’s gaming industry.”
More importantly, “We expect Melco and Lawrence Ho to clear probity review and receive regulatory approval on the merits.”
Bernstein pointed to the fact that Melco and Crown have already been partners in the ill-fated Melco-Crown tie-up that launched IRs in Macau and Manila (before separating in 2017), passing probity checks in NSW and Victoria during that time. It also noted that historical reports alleging links between Stanley Ho and triad activities in Macau had never been proven, that he had never been arrested or convicted of any of the allegations and had repeatedly denied any criminal ties.
“Further, while Stanley Ho is still alive, he is completely out of the gaming business and is in full retirement,” the analysts said. “Stanley Ho has been pretty much out of the whole gaming picture since 2009 after suffering from a fall at home and being confined to a hospital for seven months thereafter.”
Assuming Melco is given the green light to proceed, Bernstein expects the company to acquire the remaining 26.8% Crown stake held by James Packer – pushing Melco to 46.8% ownership – and from there pursue a possible full acquisition.
“Assuming a full acquisition of Crown occurs, Melco will become a truly global and more diversified gaming company,” it said, noting that the opening of Crown Sydney in 2021 promises to provide a strong synergy to Melco’s existing operations in the premium and VIP space.
Acquisition of a bigger stake is also seen as a benefit to the company’s ultimate goal of winning a Japan IR license given it would require a full probity review by Australian regulators, therefore “enhancing Melco’s global branding in its bid for a Japan IR.”
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