Wynn stock offering to net $175 million to pay down debt

By Steve Green

Tuesday, March 17, 2009 | 9:58 a.m.

Wynn Resorts Ltd. of Las Vegas today received a positive response to a secondary offering of shares of common stock, with analysts saying cash from the sale will give Wynn more flexibility to pay down debt and to look at profit-making opportunities in today's depressed gaming industry.

Wynn today said the stock will be offered to the public at $19 per share. The offering was initially announced Monday afternoon.

The sale of 9.6 million shares is expected to net about $175 million after expenses for Wynn Resorts, which said it will use the funds for general corporate purposes and to repay debt, which totals about $4.3 billion.

In the fourth quarter of 2008, Wynn lost $159.6 million or $1.49 per share on revenue of $614.3 million as the recession hurt the gaming and hotel industries. The company owns the Wynn and Encore resorts on the Las Vegas Strip as well as a casino in the Chinese district of Macau.

Its stock opened lower this morning, but by midday was trading at $20, up 35 cents from Monday. During the past year it has traded as high as $119.74 and as low as $14.50.

While the deal is small in comparison to Wynn's total capitalization and debt level, stock analysts generally said it makes sense and some said it will bolster Wynn's balance sheet by reducing debt at a time when Wynn can buy its own debt at a discount because of investors' negative sentiment about Las Vegas and the gaming industry.

Goldman Sachs analyst Steven Kent said in a note to clients he is maintaining his 12-month target price for Wynn stock of $23, and estimated the offering would not affect earnings per share for 2009 but -- by boosting the number of shares outstanding -- would reduce earnings per share slightly in 2010 and 2011.

"Although there may be some opportunities to purchase assets over the next several months, we would be surprised to see Wynn pursue this, given its lack of a track record on acquisitions,'' he said in note to clients.

Morgan Stanley analyst Celeste Mellet Brown said the offering is a positive, "demonstrating the company has access to capital even in today's dour markets.''

"While the company does not `need' the cash, the offering will strengthen the balance sheet and provide flexibility to take advantage of potential market opportunities. While the offering will be 6-7 percent dilutive to existing owners, strengthening the balance sheet is paramount, and Wynn has previously shown an ability to use access to the markets to create value for existing shareholders,'' Brown said in a note to clients.

Wynn said the stock offering is expected to close March 20 and includes a feature in which underwriters can buy another 1.44 million shares. The companies involved as underwriters include Deutsche Bank Securities Inc., Merrill Lynch & Co., J.P. Morgan Securities Inc., Moelis & Co. and Wachovia Capital Markets LLC.

Steve Green can be reached at 990-7714 or [email protected].