By Kate O’Keeffe
Of DOW JONES NEWSWIRES
HONG KONG (Dow Jones)–Macau casino operator Melco Crown Entertainment Ltd. (MPEL) said Thursday it had signed a US$360 million deal to gain control over a large-scale casino-resort development project in the Chinese territory, a move that could significantly boost the joint venture’s foothold in the world’s biggest gambling market.
The deal primes Melco Crown backers Lawrence Ho and James Packer–the sons of Macau gambling kingpin Stanley Ho and the late Australian casino-and-media magnate Kerry Packer, respectively–to open their second casino project in Macau’s Cotai area, a formerly barren strip of landfill that has become the focus of billions of dollars worth of investments from casino operators including Las Vegas Sands Corp. (LVS).
It also resolves a bitter dispute between the project’s earlier partners that had escalated to the Hong Kong courts, stalling development for years.
Macao Studio City, originally 60% held by a joint venture of Hong Kong-listed eSun Holdings Ltd. (0571.HK) and Singapore-listed property developer CapitaLand Ltd. (C31.SG), and 40% owned by New Cotai Holdings LLC, an arm of U.S. investment firms Oaktree Capital Management L.P. and Silver Point Capital L.P., was supposed to have opened in 2009. But the parties were unable to work together.
Nasdaq-listed Melco Crown said Thursday it plans to pay US$260 million for the eSun-led joint venture’s 60% stake in the project. It said New Cotai will retain its 40% stake, though Melco Crown will also pay the U.S.-backed consortium US$100 million in cash over two years.
Melco Crown Chief Executive Lawrence Ho told a news conference Thursday that Macao Studio City would cost a further US$1.7 billion to finish and that it would, pending government approval, open with 300-400 gambling tables and 1,200 electronic gambling machines.
Ho also said the project would have 2,000 hotel rooms, 200,000 square feet of retail space, as well as other entertainment offerings.
Melco Crown said it doesn’t expect to meet the 2013 opening deadline for Macao Studio City as stipulated in the government-granted land rights for the project.
But, Ho said: “We wouldn’t have done this without the Macau government’s blessing.”
Representatives from the Macau government didn’t return requests for comment.
Melco Crown’s plans to differentiate Macao Studio City, a 6 million square-foot site next to Sands China Ltd.’s Venetian Macao, the world’s largest casino, remain unclear.
The project initially attracted interest from Marriott International Inc, W Hotels, Ritz-Carlton Hotel Co., mall-operator Taubman Centers Inc., and Playboy Enterprises Inc.’s Playboy Mansion. But Taubman and Playboy Enterprises backed out in 2009 amid the investor dispute that had left the development stalled indefinitely.
Some analysts believe that Melco Crown will be able to inaugurate the new Cotai project ahead of competitors SJM Holdings Ltd., Wynn Macau Ltd. and MGM China Holdings Ltd., all of whom have plans to open new properties in the area as early as 2015 but are awaiting land rights from the Macau government.
Analysts had speculated recently that Melco Crown would use the CNY2.3 billion (US$350 million) raised via a bond issuance last month to invest in Macao Studio City, for which it already had rights to operate the planned project’s casino on a revenue-sharing basis.
Under a previous deal with Macao Studio City’s backers, Melco Crown was to receive 10% of the gross gambling revenue from the mass market business, a person familiar with the situation said Thursday. The company was also to receive 5% of revenue from the VIP segment, the person said.
David Bain, an analyst at Sterne Agee Group Inc., said Thursday his firm had valued Melco Crown’s earlier revenue-sharing contract at US$3 per share, and that the acquisition of the majority stake in the project was a “very good deal” which would be worth more still.
Credit Suisse analyst Gabriel Chan wrote in a report this month that Melco Crown’s possible acquisition of the Macao Studio City project would be “a powerful re-rating catalyst, countering concerns about the lack of future growth drivers.”
Melco Crown’s new Cotai casino would compete against existing mega resorts such as Galaxy Macau, opened last month by Hong Kong-listed Galaxy Entertainment Group Ltd., and the Venetian, which opened in 2007.
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It would also join Melco Crown’s own flagship property, the City of Dreams, which opened in 2009. The project has seen its business improve after a slow opening.
eSun said in a separate statement Thursday that a default notice from the Macau government regarding the lack of progress on the project was among its reasons for wishing to settle the dispute. CapitaLand on Thursday also confirmed the sale plans.
According to the terms of the deal, the eSun-led joint venture and New Cotai will settle legal proceedings initiated against each other in Hong Kong without admitting liability, eSun said.
