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When Steve Wynn stepped down as CEO and chairman of the board of directors at Wynn Resorts Limited (NASDAQ: WYNN), it naturally brought speculation the company could eventually be taken over. Wynn was the driving force behind the company, and without him, there's a significant fear the company's competitive advantage will erode over time. Plus, we saw a similar buyout when MGM Resorts (NYSE: MGM) acquired Wynn's Mirage Resorts after the market lost confidence in his ability to manage the gaming giant.
There aren't a lot of companies that would be interested or have the ability to buy Wynn Resorts, but one that makes sense is Caesars Entertainment (NASDAQ: CZR). The company recently emerged from bankruptcy and is looking to establish itself as a valuable gaming play for investors. However, it doesn't have the attractive assets of a Wynn Resorts, so it may be willing to pay a premium.
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Caesars covets Wynn's Macau resorts
Caesars Entertainment is one of the biggest operators on the Las Vegas Strip, and has a large presence in regional gaming across the U.S. What Caesars doesn't have is gaming licenses in Asia, where Wynn Resorts generates most of its revenue.
Wynn Resorts is one of only six concession holders in Macau, the world's largest gaming market, so it owns a unique position in the market. Caesars has tried to find ways into the market without any success, most recently selling a golf course in the region for $438 million. Buying into the Macau market may be its only way in, and Wynn Resorts owns two of the most profitable resorts there.
Caesars can leverage its own REIT to fund a buyout
Another advantage for Caesars is its real estate investment trust, VICI Properties (NYSE: VICI), which owns the real estate of 20 of the company's facilities. It could fund part of the acquisition by buying the land under Wynn Las Vegas, Wynn Boston Harbor, and the 38 acres of land across the Las Vegas Strip from Wynn Las Vegas, which was recently acquired for $336 million.
Steve Wynn didn't use the REIT model because he wanted full control of his resorts. But Caesars and MGM Resorts (NYSE: MGM) have successfully used it to fund growth projects and reduce debt on their balance sheets. It could be used in this case to fund billions of dollars of the acquisition.
A once-in-a-lifetime opportunity
It may seem like an odd move for Caesars Entertainment to pursue Wynn Resorts, a company nearly twice its market cap. But this could be a transformational acquisition that gives it more geographic diversity and a large presence in the world's largest gaming market, where it's been shut out for more than a decade.
Caesars would likely have to use a tremendous amount of stock and maybe even more than double its share count to get a deal done, but it might also prove to be a good merger for both companies. Caesars could get valuable assets and Wynn Resorts could lift the cloud of Steve Wynn, who is facing inquiries from gaming regulators. Time will tell if a deal gets done -- by Caesars or anyone.
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