In light of the allegations that surfaced a couple of weeks ago, this week’s news about Wynn Resorts, Limited (NASDAQ:WYNN) founder and chief aren’t terribly surprising. That is, in late January Steve Wynn was accused of sexual misconduct, and this week the 76-year-old executive was forced to step down from his post.
Wynn Resorts stock soared on the news too, gaining 8% on Wednesday not in celebration of Wynn’s exit, but because Steve Wynn’s absence is expected to up the odds of an outright sale of the company.
And, maybe that’s what’s in the cards. A founder CEO is often given more credence than a non-founder CEO in an effort keep a company operating independently. If Steve Wynn is gone, WYNN stock holders and the Board of Directors may finally decide it’s time to pass the oft-beleaguered company off to someone else.
If we’re being completely honest though, the separation of the company and its liability-laden CEO doesn’t necessarily make Wynn Resorts stock as ownable to a prospective buyer as Wednesday’s advance would imply.
No Sure Thing
The theory has a certain superficial logic to it. Rumors of a tie-up with MGM Resorts International (NYSE:MGM) surfaced not too terribly long ago. But, if a smaller player like Melco Resorts & Entertainment Ltd(ADR) (NASDAQ:MLCO) or Boyd Gaming Corporation (NYSE:BYD) could somehow secure the financing, each might be glad to have a much bigger presence in Macau … where Wynn drives more than two-thirds of its earnings.
Any buyer would have to think long and hard before pulling that trigger though, recognizing they’d be buying into a sensitive project that would have to be handled flawlessly for three overarching reasons.
1. Steve Wynn Is Synonymous With the Company
To be fair CEO-elect Matt Maddox has been around long enough and knows enough about the casino business — and managing the people that run them — to say he’ll be able to step into the role easily enough. Not much is likely to change, at least not right away, and not from a customer’s perspective. Time and nuanced differences in personalities, however, can prove problematic.
Sure, companies have survived without high-profile founders at the helm, though in many cases it’s been surprisingly tough to do. Take Apple Inc. (NASDAQ:AAPL) for instance. Tim Cook is a qualified CEO, but he doesn’t have that special touch and flare the late Steve Jobs did.
That may be the same with Steve Wynn and Wynn Resorts. Not only does he share the company name that’s now become a liability, he’s become something of a company face. Separating the two could prove difficult, if not impossible.
2. It’s All About Macau
Thing is, Wynn Resorts isn’t exactly an easy sell right now anyway. Macau’s gaming action is still recovering from its 2015 implosion after a regulatory crackdown. It has been an uneven turnaround though, and things remain wobbly. January’s gaming revenue for China’s enclave fell well short of expectations, and Bernstein predicts that Macau’s all-important VIP gambling activity will slow during the second half of 2018.
In other words, buyers may not exactly be lining up to pay a premium price just to own a bigger piece of a lackluster market. Never even mind the possibility that China’s regulators — perhaps even prompted souring political relations and/or a trade war — could opt to make life difficult for casino operators in Macau again.
Meanwhile, gaming in the U.S. isn’t exactly what it used to be.
3. The Liability Isn’t Just Steve Wynn’s
While Steve Wynn is the biggest target here (in a legal as well as in perception sense), he’s not the only one. The Board of Directors is also being sued for a failure to properly oversee the company, and for failing to investigate rumors of sexual misconduct appropriately.
It’s a fairly flimsy legal argument, to be fair, though not one to take likely. The mere appearance of malfeasance is damning enough in itself; nobody really “wins” a lawsuit.
It has been suggested that the entire Board of Directors should resign as well, absolving the company of any lingering liabilities. Even that maneuver, however, wouldn’t prevent anyone from suing the company itself regardless of who’s at the helm.
Again, it wouldn’t be a great argument, but in light of the social outrage that’s been stirred up after an avalanche of sexual misconduct allegations have been made after Rose McGowan’s accusation of Harvey Weinstein, the company is playing with fire here. The wrong jury on the wrong day in the wrong courtroom, if it came to that, could prove costly in more ways than one. Never even mind the potential distraction of such a suit, whoever it ends up being aimed at.
Bottom Line for Wynn Resorts Stock
The point is, at this time there are better gambles out there than Wynn Resorts stock. Current shareholders may want to consider cashing out here while there’s something in-hand to cash out. Better to miss out on the last bit of premium a buyout offer might squeeze into the price of Wynn Resorts stock than suffer a selloff should any buyout offer not be a generous one.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
