Acquisitions keep Melco Resorts share rating neutral

Morgan Stanley announced Melco Resorts share rating is still set at “overweight” after the company’s acquisitions in Cyprus and Australia.

Hong Kong.- Despite the company’s acquisitions over the last few weeks, Melco Resorts share rating remains the same. Banking group Morgan Stanley announced it kept its “overweight” rating as the new deals’ impact wasn’t big enough.

“Recent acquisitions of Crown [Resorts] and City of Dreams Mediterranean stretched the balance sheet, reduced free cash flow to equity, and capped the dividend, but near-term market share gains and medium-term growth options keep us ‘overweight’,” analysts Praveen Chouhary and Elise Kennedy said.

“While we do not expect a higher dividend or buyback in the near term, we highlight management’s intention to do just that. Melco Resorts has steadily increased its regular dividend, paid special dividends and has bought back shares worth €2.6 billion since 2014, with a total dividend return of €1.6 billion, including a special dividend of €308 million in 2015, and €572 million in 2016.”

Cyprus’ acquisition

Melco Resorts & Entertainment announced on Monday that it has entered into a definitive agreement to acquire from Melco International Development Limited all of Melco International’s holding of ordinary shares of ICR Cyprus Holdings Limited.

The holding of ordinary shares represents a 75% equity interest in ICR Cyprus. The latter, along with its subsidiaries, is developing the City of Dreams Mediterranean integrated destination resort project in Cyprus. The casino is currently under construction and scheduled to open in 2021. After opening its doors to the public, it will become the largest integrated resort (IR) in Europe.

Melco will acquire the Acquisition Shares in exchange for 55.5 million ordinary shares of Melco Shares. As reported by the company, these are equivalent to €330 million. A special committee of independent directors formed by the company’s Board of Directors to consider the acquisition unanimously approved the transaction.

Crown Resorts’ shares buyout

In late May, Melco announced that it reached a purchase agreement that specifies that one of its subsidiaries will acquire 135.35 million shares of Crown Resorts Limited from CPH Crown Holdings Pty Limited (CPH) for a price of €8 per Crown share.

As detailed by the company, the shares represent an ownership interest of approximately 19.99% in Crown. The transaction will close in two equal tranches on June 6, 2019 and on or prior to September 30, 2019.