Wynn Goes ‘Nuclear’

Okada Manila Tour Proves Defining as Wynn Goes ‘Nuclear’
By Vinicy Chan and Kana Nishizawa
Bloomberg News

Stephen Wynn stepped off his private jet at Manila airport in June 2010 to be greeted by the Philippines gaming regulator. On the tarmac too, in black wraparound sunglasses and trademark 1950s-style slicked-back hair, was Japanese slot-machine billionaire Kazuo Okada.

Okada, 69, wanted the chief executive officer of Wynn Resorts Ltd. (WYNN) to join his $2 billion casino and hotel project on Manila Bay. Wynn, companion Andrea Hissom and Wynn Resorts Chief Operating Officer Marc Schorr toured a hotel, shopping mall and casino showcasing Manila’s investment potential, and sat through a presentation on the new project in an air-conditioned marquee, photographs of the trip show.

That visit proved pivotal for Okada’s ambition to create an Asian casino empire -- only not as he’d hoped, according to an interview last week detailing how his 12-year alliance with Wynn went sour. Philippines regulator Efraim Genuino was indicted in an ongoing graft case. By the fall, Wynn was focusing on Okada’s Philippines activities, court documents show, removing him as vice chairman last year and forcibly buying his $2.77 billion stake last month at a 30 percent discount.

During three hours at his 36th-floor office in Hong Kong’s Tsim Sha Tsui district, Okada laid out his version of the split with Wynn, whose business he helped revive with funding in 2000. It’s a story at odds with the 47-page report Wynn commissioned from Louis J. Freeh, a former director of the U.S. Federal Bureau of Investigation, which catalogues more than $110,000 in hotel rooms, meals and gifts for gaming officials and their associates that Wynn’s lawyers said may have breached U.S. anti- graft laws.

No Notice
“They gave the board the report without letting me review it,” said Okada, founder of Tokyo-based Universal Entertainment Corp. “Even criminals would be asked to sign off on the findings to ensure there are no mistakes.”

The boardroom scrap at Las Vegas-based Wynn Resorts shows the dilemma U.S. companies face when seeking growth in Asia, where a broader acceptance of gift giving and hospitality conflicts with the tightening anti-bribery regime at home. Wynn Resorts alleges Okada misused its assets, name and know-how to promote himself, even though Wynn had decided to stay out, and that his actions put the company’s gambling licenses at risk.

Freeh briefed Wynn Resorts’ directors on his findings Feb. 18, and on the same day they judged Okada to be an “unsuitable person,” invoking a clause in the articles of incorporation to redeem the 20 percent stake that made him the company’s biggest shareholder. Okada said he’s gathering evidence to show the report was riddled with errors and exaggerated standard industry practice as a pretext to eliminate a man Wynn, 70, had come to regard as a threat.

‘Dormant Nuclear Weapon’
“These are very standard terms that lawyers put in these contracts, but they’re rarely invoked,” said Wendy Wysong, a Hong Kong-based lawyer at Clifford Chance (1000L) LLP who specializes in anti-corruption matters. Clifford Chance isn’t advising either party, she said. The clause is like a “dormant nuclear weapon” that’s put in “to make everyone comply with the law.”

Wynn’s use of the provision raises the prospect that other companies may follow suit to “just boot somebody out that’s fallen out of favor,” she said.

Freeh interviewed Okada for more than seven and a half hours in Tokyo. “He did not offer any exculpatory evidence in that meeting nor has he to date,” said Paul Kranhold, a Wynn spokesman.

Wynn Resorts alleges Okada broke its code of conduct by trying to set up a casino to rival its operation in Macau.

Macau Rival
Okada planned “to lure high-limit, VIP gamblers from China” to Manila “in direct competition with Wynn Macau,” according to documents filed in a Feb. 19 lawsuit in Nevada.

A shareholder agreement amended Jan. 6, 2010, bars Okada from investing in casinos in Macau and Nevada, regulatory filings show. There is nothing to stop Universal (6425) from expanding elsewhere, he said. What’s more, everything was done to further the partnership with Wynn and for their mutual benefit, he said.

“I believe that business by nature is about trust, contracts are a last resort,” Okada said. “That may be a difference between Western and Asian countries.”

Okada won one of four provisional gaming licenses awarded in the Philippines in 2008, according to a Feb. 19 lawsuit filed by Wynn in Nevada. Pushing ahead with the project went against “requests to Okada not to pursue business in the Philippines,” the document said.

Manila Trip
“In or around the fall of 2010,” Wynn learned Okada was falsely claiming that he and Wynn Resorts were developing the Manila project together, the writ said. After Wynn’s compliance committee advised the group to steer clear of the country because of corruption concerns, “Okada was unrelenting,” and in February 2011 “repeated his oft-uttered request that Mr. Wynn travel to the Philippines to explore investing in Universal’s Manila Bay project,” the court papers said.

The photographs, copies of which were given to Bloomberg News, show Wynn had already been there, with Hissom and Schorr, on June 14, 2010. Wynn was “very interested” and asked to meet with Aquino, Okada said.

In a 2008 press release, Universal said it “intends to enlist the full cooperation of Wynn Resorts Ltd.’s Steve Wynn” to develop the project. Okada said the license was to build the hotel-related facilities at an integrated casino resort and that he wanted Wynn to join in any gaming business.

Okada pushed for the meeting with Aquino and was “embarrassed and angry” when told to cancel, the court document said. Okada said Wynn was “foolish” to turn his back on the Philippines project, which he expects to rake in about $3.5 billion in revenue in its first year of operation.

Hong Kong Move
Okada last year began moving operations to Hong Kong, transferring Philippine land assets from his U.S. unit to Aruze Hong Kong Ltd. in April, filings show. Through another Hong Kong company, Okada, his son, daughter and second wife control 70 percent of Universal, filings show. Okada and his wife rent a luxury, 10th-floor apartment overlooking Repulse Bay on the south of Hong Kong island, and he plans to open three restaurants in the territory this year.

It’s all part of refocusing the group on growth in Asia outside Japan, he said, seated at a conference-room table in offices bereft of ornaments or signage, except for an Aruze Gaming logo above reception. During the interview, Okada’s iPhone rang with a Japanese earthquake warning. Category 2, he said, nothing to worry about.

Cambodia, South Korea
Okada said he has also bought land in Siem Reap, Cambodia, and has held talks with South Korean officials about a $3 billion casino project near Incheon Airport (IIACZ).

For Okada, the growing number of governments in the region that plan to introduce casinos offers a chance to diversify away from Japan, where Universal’s operating profit peaked in 2000. Wynn Resorts sees the trend more as a risk.

“If current efforts to legalize gaming in other Asian countries are successful, our Wynn Macau resort will face additional regional competition,” the company said in its annual report released last week.

Wynn lost out to Sheldon Adelson’s Las Vegas Sands Corp. (LVS) and Kuala Lumpur-based Genting Bhd. (GENT) when Singapore granted its first gaming licenses in 2005 and 2006. Global anti-graft watchdog Transparency International ranks Singapore the fifth- least corrupt nation in the world, behind New Zealand, Denmark, Finland and Sweden.

The Philippines ranks 129th. Cambodia, 164th.

Outstripped
Ten years after Macau began offering new casino licenses, the Chinese territory’s $34 billion annual gambling revenue is more than four times that of Las Vegas. A turf war between triad mobsters in the run-up to the deregulation saw casinos raked with automatic gunfire, gangland killings and the attempted car- bombing of the police chief. Now the enclave has cleaned up its act, said Okada.

“It’s no longer that dim, dirty, dark and sketchy place that’s scary at night,” he said.

The territory, the only place under Chinese rule where casinos are legal, now accounts for more than 70 percent of the group’s revenue. Okada was booted off the board at Wynn Macau Feb. 24. He’s still on Wynn Resorts’ board because he can’t be removed without a shareholder vote.

Wynn married Hissom on April 29, 2011, at Wynn Encore in Las Vegas. He divorced his first wife, Elaine, in 2009, giving half his 20 percent stake in the company in her settlement.

University Grant
In a conference call to explain the decision to oust Okada, Wynn Resorts executives, including compliance committee head Robert Miller, said they needed to limit the company’s risk of losing its gaming licenses. Okada was given ample notice of the board’s concern and was asked to choose between the Philippines and Wynn Resorts, Miller said, according to a transcript of the call.

In January, Okada turned the spotlight on Wynn, suing to force more disclosure on a $135 million donation to the University of Macau that he said hasn’t been sufficiently explained.

Wynn Resorts needs land to build a second Macau casino- hotel on the increasingly popular Cotai Strip, where it is one of only two operators in the territory yet to set up business. Wynn Resorts rose 4.3 percent yesterday after it filed a statement suggesting it had been awarded a concession there. It later retracted the filing. Las Vegas Sands will open a new casino-hotel on Cotai in April. Hong Kong tycoon Francis Lui’s Galaxy Resorts opened there in May.

No Details
Wei Zhao, the university’s rector, in a Feb. 29 interview, declined to give a detailed breakdown of how the money would be spent.

The U.S. Securities and Exchange Commission last month requested information on the donation, Wynn Resorts said in its annual report. Okada’s court action was an attempt to distract attention from his own conduct, Wynn said.

Wynn’s court documents cited 36 occasions between 2008 and June 2011 in which Universal allegedly made a total of about $110,000 in payments at Wynn Resorts in Macau and Las Vegas benefiting Philippine gaming officials. Cristino Naguiat, who took over from Genuino, stayed at a $6,000 a night apartment usually reserved for high rollers, the report said.

Villa 81, one of four for VIP guests at Wynn Macau, sprawls over almost 7,000 square feet, with three master bedrooms, a sound-proof media room with 100-inch television, and bathrooms with mother-of-pearl walls. One time, Universal picked up a $50,523.22 tab for Naguiat’s party, Wynn alleges.

Inaccurate Picture
Wynn’s figures fail to distinguish between business and regulatory guests, highlight the total amount rather than per- person expenses over the three-year period and fail to take account of Universal’s own costs tagged onto the rooms, Okada said. Universal was also reimbursed for some expenses, he said.

Universal keeps track of hospitality its executives receive and seeks to provide a reciprocal amount in return, he said. Universal estimates Philippines regulators spent about $47,375 entertaining its officials since July 2010, according to a document provided by Okada.

There was nothing inappropriate in the Macau trip, Naguiat said in a Feb. 21 phone interview. “It is industry practice that if there are casino executives in town, we offer cars, security and rooms as a courtesy, as a form of reciprocity,” he said. “In the past month, Francis Liu of Galaxy and Lawrence Ho of Melco also visited and we offered the same.”

Okada said he is gathering evidence to prove Wynn’s facts are wrong, clear his name, and win back the shareholding. Wynn Resorts’ board canceled the stock at a weekend meeting, effectively preventing Okada from seeking an injunction, the company’s lead counsel Kim Sinatra said on the conference call.

10-Year Note
Wynn Resorts will pay Okada $1.9 billion for his stake though a 10-year promissory note, the maximum term permissible under the company’s articles of incorporation. Because of a 2006 shareholder agreement restricting Okada from selling the shares without Wynn’s consent, they weren’t deemed freely tradable and so were priced at a discount, Wynn Resorts Chief Financial Officer Matt Maddox said on the call.

With hindsight, Okada said he now suspects Wynn may have harbored a desire to get rid of him as early as 2002, when he unilaterally approved the articles of incorporation for the company before its initial public offering.

Wynn couldn’t afford to get rid of him until their expansion into Macau, Okada said.

“He saw his chance when Macau proved to be a success, and started to feel like he was on top of the world around mid- 2010,” Okada said.

Okada said he wasn’t aware of the 2002 amendment that included a clause giving the board powers to declare a person unsuitable, forcibly redeem their shares at a price they would determine.

“Mr. Okada has previously authorized and acknowledged these fundamental protective measures and has participated in board meetings at which the documents containing these provisions were discussed,” Wynn spokesman Kranhold said.

Articles of incorporation are generally overlooked in Japan as nobody thinks they’re important, Okada said.

“We should have been helping each other over the hard times, in a relationship based on trust,” he said. “But he was a cunning man.”