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Wynn's largest shareholder: Ouster process flawed

Source : AP
Last Updated: Tue, Feb 21, 2012 23:01 hrs

A casino game company based in Japan that is the largest shareholder of Wynn Resorts Ltd. said Tuesday that it will seek a temporary restraining order and a court injunction to keep Wynn from from forcibly buying back its nearly 20 percent stake.

Universal Entertainment Corp. said in a statement that Wynn Resorts, the casino developer and operator led by billionaire CEO Steve Wynn, hasn't provided a copy of an investigation report that led to the company's buyback effort over the weekend.

Universal said Wynn's investigation was skewed to meet the chief executive's predetermined goal to separate from Universal and its principal shareholder, Kazuo Okada, who used to lead the board of Wynn Resorts.

"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 said.

In turn, Wynn Resorts says Okada hasn't denied wrongdoing, including improperly paying gambling regulators in Asia. The company says Okada is simply frustrated that the casino operator didn't go in on a plan to develop a casino in the Philippines.

Okada and Steve Wynn have been at odds for months, with Okada questioning how Wynn managed Okada's $380 million investment.

The company said its yearlong investigation into Okada's dealings showed that Okada repeatedly violated company conduct policies and U.S. anti-corruption laws. The investigation found that Okada gave cash and gifts worth $110,000 to gambling regulators, including regulators in the Philippines.

Bob Miller, a board member and the leader of the compliance committee investigation of Okada, told analysts on a conference call on Tuesday that the company was trying to protect its current operations and future investments by looking into Okada's actions as it considered pursuing the project in the Philippines.

Miller said the board decided not to get involved in the Philippines project because of Okada's dealings and told him of its concerns in September. Miller said that, according to several board members, Okada said gifts to government officials are customary in Asia, either directly or through subsidiaries. Not removing Okada as an investor would have "cast a cloud over us," Miller said, according to a transcript of Tuesday's call.

"We chose to act because, not only was that the advice of counsel, but that's clearly what's in the best interest of this company and its shareholders."

Analyst David Bain of Sterne Agee & Leach Inc. said the dispute isn't likely to be resolved soon.

"If we were to trade Wynn (shares) on headline counter-punches in its disputes with Okada, Wynn may have won a round by seemingly redeeming 20 percent of its stock at a 31 percent discount to market prices," Bain said. "However, in our view, this marks the beginning of what is now a foreseeable, longer-term showdown between the two parties, likely leading to additional bruising on both sides."

Wynn Resorts said Sunday that it plans to take back the shares and give Universal a $1.9 billion note, payable over several years or earlier, if the company chooses. The market price of Universal's stake at Tuesday's close was nearly $2.9 billion.

Carlo Santarelli of Deutsche Bank said Wynn seems to be in a position of strength because Okada's allegations came after he knew Wynn was investigating his dealings and because the process of transferring shares has begun under guidelines detailed in the company's bylaws.

But it's not clear how a court fight will play out. Gambling regulators in Nevada, where Universal already has one lawsuit pending against Wynn Resorts — or corporate regulators at the federal level — may not approve Wynn owing significant debt to Universal. And, if other shareholders' stakes rise as a result of Universal's departure, they may need to obtain gambling licenses, raising still other questions, Santarelli said.

"Lingering ambiguity remains, and is likely to remain for some time," Santarelli said.

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Oskar Garcia can be reached on Twitter at http://twitter.com/oskargarcia .




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