Studio City’s recent IPO has provided a potential future pathway for its majority owner Melco Resorts and Entertainment to complete a full acquisition, despite Melco’s stake falling by almost 7% as a result of the IPO process.
Brokerage Bernstein gave its verdict on the offering in a note this week, describing it as a positive both for Melco and New Cotai LLC in relation to their respective ambitions.
The IPO, which saw Studio City sell 41.3% of its equity while raising US$413 million in proceeds, ultimately reduced Melco’s stake from 60% to 53.2% and New Cotai’s from 40% to 24.4%. Affiliates of New Cotai acquired 12.8% with the remaining 9.4% snapped up by public investors.
Nevertheless, Bernstein said the transaction “provides for New Cotai a step toward monetizing its interest in Studio City and a potential path towards a future Melco acquisition of Studio City. If Melco were to eventually buy out minority interest, the IPO and public market trading price also help set a price threshold.”
Bernstein added that the IPO price of US$12.50 per share – at the very top end of the pricing range – was a positive event for Melco, allowing it to retain majority ownership while reducing Studio City debt.
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