Coronavirus Scuttles First Major Deal: Melco Bails on Crown Stake Acquisition
A major deal between Melco Resorts & Entertainment Ltd and Crown Resorts Ltd fell through due to concerns arising from the recent coronavirus outbreak, leading to a steep decline in the number of travelers worldwide, as well as suspensions of multiple casinos in Macau which is the world’s largest gambling hub and borders mainland China, where the coronavirus first appeared.
Macau has responded quickly to the crisis by enacting a two-week suspension of all casinos in their territory, to quell the virus’ continued spread. Industry analysts expect that the suspensions will have consequences far beyond just gambling revenue. In addition to cashflow issues on the part of casinos, the tourism, airline, and recreation industries are expected to take major hits for the near-future. Furthermore, factories and stores are closing in China due to the virus, slowing down business activity in the region.
Melco was slated to purchase a second stake in Crown (9.9%) from James Packer, the Australian billionaire bringing Melco’s total acquisition to 19.9%, valued in May 2019 at $1.2 billion.
Sky News Australia
The prospective deal has long been scrutinized by Australian regulators for Melco’s links with Stanley Ho, father of Lawrence Ho who owns Melco. Links to organized crime and billionaire Stanley Ho have been in the media for a long time and Stanley Ho has been the subject of investigations carried out by the United States and Australia.
Last August, Packer put Melco’s second purchase on hold to give Australian investigators time to clear Crown from suspected criminal activities in their Australian business. In Jan 2020, Crown appointed a new chief executive after a three year vacancy. Set to make the first of their biannual earning reports on Feb. 19, Crown share prices ended flat last week.
Melco to Focus on Core Investments
Some analysts praised Melco’s decision to pull away from the Crown deal, stating that Melco shareholders should be pleased that the acquisition was scuttled before it was too late. A consensus among analysts is that Melco is biding its time to divest their current shares in Crown (9.99%), completing its exit from the deal. Melco also abandoned its plans to occupy a seat on the board of Crown.
Melco released a statement, identifying the coronavirus outbreak as the key reason for its departure—as the virus rages on, Melco plans to center their efforts on their core projects. 90% of Melco’s revenue comes from Macau; it also operates in Cyprus and Manila, and is currently bidding for a casino license in Japan.