Casino investor makes arrangenments for Philippines deal

Almost five years after taking public the company that manages the City of Dreams Manila, a unit of $11 billion U.S.-listed Melco Resorts & Entertainment says it wants to buy out the roughly 27 percent free float for 7.25 pesos a share - about a $200 million deal, Nasdaq reports.

A handpicked group of eight comparable enterprises in the region, including Bloomberry Resorts and Travellers International Hotel Group, was trading on average at 11.4 times EBITDA as of June 30. Adviser FTI Consulting contends, however, that MRP's business is riskier than the rest, despite a shooting incident last year that hit the bottom line at Travellers hard, for example. By ratcheting up the company's theoretical cost of capital, FTI argues MRP's valuation multiple should be only 6.5 times, glossing over the notion that public-market investors already should have factored in such considerations.

Fairness opinions like FTI's are typically subject to quibbling. Here, some investors are unconvincingly stuck on higher stock prices from years ago. At the same time, Melco itself told them more recently that the company was considerably undervalued. Although the bidder briefly postponed the tender offer this week, it also has said it intends to delist the Philippines company regardless of whether it secures the requisite 95 percent ownership to do so.

It all comes over as rather shabby treatment of minority shareholders, especially for a company that likes to tout its corporate governance bona fides. What's more, Melco is planning an initial public offering in New York for Studio City, its Hollywood-themed Macau casino. The Philippines market may be relatively small and distant, but investors should be wary of Ho stacking the deck.

- A Melco Resorts & Entertainment unit on Oct. 4 defended the valuation it used to set the price of a tender offer to buy out minority shareholders in its Philippines venture after they had raised concerns about the methodology with the local bourse.

- Melco's MCO Philippines Investments on Sept. 10 offered to buy up to 1.5 billion shares, or the publicly traded 27 percent of its Manila-listed subsidiary's outstanding capital, at 7.25 pesos each. The price represents about a 17 percent premium to where the shares closed on Sept. 7, the last trading day before the tender offer was announced.

- The total cost of the proposed share purchase would be about 10.9 billion pesos ($200 million). The tender offer had been due to start on Oct. 3 and end on Oct. 30. Melco told the Philippine Stock Exchange on Oct. 1 that it would defer it for about two weeks "or until such time that it otherwise determines."

- Melco had said it would seek a voluntary delisting of the company even if it did not secure the 95 percent ownership required, but noted in its Oct. 4 statement that the final decision would be made by the exchange.