Wynn Resorts $3.2 billion special merger deal nixed

A deal to spin off the online gaming branch of Wynn Resorts Ltd. into a public company was called off Friday morning by the casino operator — quashing a merger that would’ve created a $3.2 billion public company.

Wynn Resorts said Friday that its subsidiary Wynn Interactive and blank-check company Austerlitz Acquisition Corp. I, mutually agreed to end their merger plans, effective immediately.

The announcement comes three days after Wynn Resorts CEO Matt Maddox said he would be departing Jan. 31 with Wynn Interactive CEO Craig Billings taking over Feb. 1.

Wynn did not give a reason for nixing its merger, but the reasoning possibly could be related to issues noted during its third quarter earnings call on changing its approach to online gaming.

“In light of elevated marketing and promotional spend in the sports betting industry, we are pivoting our user acquisition efforts to a more targeted ROI-focused strategy,” Billings said on the earnings call. “In so doing, we expect the capital intensity of the business to decline meaningfully beginning in the first quarter of 2022. WynnBET’s best days lie ahead of us.”

Company executives first announced plans for the merger in May. The deal would have joined Wynn Interactive with the Austerlitz firm, a blank check or special purpose acquisition company backed by investor William Foley, who is also principal owner of the Golden Knights.

When complete, the deal was expected to value the new company at an estimated $3.2 billion and give Wynn Resorts $640 million in cash to help fuel growth, according to a company release.

Wynn Interactive would have retained 79 percent of the combined company, including a 58 percent controlling interest to be held by Wynn Resorts.

Reading the tea leaves

Shares traded lower after the merger termination announcement with J.P. Morgan analysts lowering Wynn’s December 2022 price target from $101 to $93 per share.

“This price target change is a direct result of this morning’s announcement,” according to J.P. Morgan’s Friday note.

Deutsche Bank analyst Carlo Santarelli said in a note his price target remains at $131, adding it was revised lower earlier this week “in part due to the lower value ascribed to the 58 percent interest we expected Wynn to own of the merged entity.”

“With the elimination of the venture, we believe Wynn is likely to trade on a revenue multiple, akin to peers,” he said.

“While somewhat surprising, the tea leaves were present in the days leading up to the announcement,” said Santarelli, citing Billings succession of Maddox and Wynn announcing plans to pivot its sports betting and online gaming strategy “given the irrational customer acquisition behavior they see taking place in the market.”

Shares of Wynn Resorts, traded on the Nasdaq exchange, declined 0.4 percent on Friday, closing at $93.95 a share. Shares rose 0.05 percent after hours to $94 a share.

Contact Subrina Hudson at shudson@reviewjournal.com. Follow @SubrinaH on Twitter.