Wynn Stock is Cookin’ as Controversy Boils

Wynn Resorts (WYNN) just upped the stakes in a no-holds-barred battle with one of its largest shareholders, and shares are rising sharply higher. They were recently up 6.5%.

This weekend, Wynn forcibly bought out Japanese gaming tycoon Kazuo Ozada, who owned 20% of the company, purchasing shares owned by his company Universal Entertainment at a 31% discount to last Friday’s closing price. Wynn said it bought the shares after a year-long investigation of Okada uncovered that “Mr. Okada and his associates engaged in improper activities for their own benefit in apparent violation of U.S. anti-corruption laws and gross disregard for the Company�s Code of Conduct. These troubling discoveries include cash payments and gifts totaling approximately $110,000 to foreign gaming regulators.”

Okada had already sued Wynn questioning a $135 million gift the company had made to a Macau university. Said Universal Entertainment in response to Wynn’s recent action:

“While Wynn Resorts has still not provided Universal with a copy of the “investigation” report, we believe the allegations leveled against Universal are motivated by self-interest and represent the results of an incomplete and otherwise flawed corporate governance process in breach of the Board’s fiduciary and other duties. Universal believes the entire process has been tainted by the desire to serve Steve Wynn’s predetermined goal of removing Aruze USA as the largest stockholder of the Company.� Aruze USA intends to commence litigation, which includes seeking a temporary restraining order and preliminary injunction, to protect its interests in Wynn Resorts and prevent the redemption of its shares.”

CLSA analyst Jon Oh does not expect the controversy to derail his positive thesis on the company.

“Although we do caution investors that we foresee further duels between the two parties, and it is unlikely that this is the final outcome, our investment call on Wynn Resorts remains a BUY with a value of $140/share based on a sum of the parts analysis. Any significant weakness to the share price on the back of this event could be seen as a buying opportunity as our thesis remains that Wynn Resorts is one of the most solid cash-flow generating companies within our coverage, potentially yielding as high as 6% if one includes the trend of special dividends.�This is premised on our understanding that the battle does not percolate to the operational level of the company (running of the business in Macau and Vegas) and does not in any way affect the ability of Wynn management and the board (declaring dividends, approving Cotai plans, etc) to continue steering the company forward.”