GenM seals Empire Resorts RPT buy despite investor backlash

This article first appeared in The Edge Financial Daily, on August 21, 2019.
GenM seals Empire Resorts RPT buy despite investor backlash
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KUALA LUMPUR: Genting Malaysia Bhd (GenM) is proceeding with its related party transaction (RPT) to acquire an effective 35% stake in the cash-strapped US casino operator Empire Resorts Inc from its controlling shareholder Tan Sri Lim Kok Thay, who is also its chief executive officer and chairman, although the deal has met with criticism.

Some RM3.27 billion of market capitalisation has evaporated from GenM as it came under fierce selling pressure since the announcement of the RPT that will cost RM538 million cash. Its parent company Genting Bhd is not spared from selling, whose market cap of RM2.54 billion has been wiped out since then, too.

In a filing with Bursa Malaysia yesterday, GenM said yesterday that its indirect wholly-owned subsidiary Genting (USA) Ltd (GenUSA) has bought a 49% stake in joint venture company (JVCo) Hercules Topco LLC, which will hold all outstanding shares in Empire under the planned delisting.

GenM told Bursa Malaysia that on Sunday, GenUSA and Kien Huat Realty III Ltd (KH) received their respective 49% and 51% stakes in Hercules Topco to undertake the corporate exercise taking Empire Resorts private.

According to GenM, Hercules Topco had also entered into an agreement and merger plan on Sunday with Hercules Merger Subsidiary Inc and Empire to effect the merger, which will see Hercules Topco acquiring Empire’s remaining shares from minority shareholders at US$9.74 (RM40.71) each.

“As part of the proposed merger and in accordance with the merger agreement, shareholders of Empire common stock other than (i) shareholders who have elected to dissent from the proposed merger and seek appraisal rights; (ii) shareholders of cancelled shares; and (iii) KH, GenUSA, JVCo and their respective affiliates will be entitled to receive in cash from the JVCo US$9.74 for each share in Empire held.

“The Empire Resorts board, on the recommendation of the special committee, approved and authorised the merger agreement and the proposed merger, declared that the proposed merger is in the best interests of Empire and its shareholders, directed that the merger agreement be submitted for approval by Empire’s shareholders at a shareholders’ meeting and recommended that Empire’s shareholders adopt the merger agreement.

“Under the terms of the merger agreement, JVCo and Empire will take efforts to delist Empire common stock from the Nasdaq Global Select Market and deregister Empire’s common stock under the United States Securities and Exchange Act of 1934, as amended, following the successful completion of the proposed merger,” GenM said.

The selldown on GenM and Genting shows that the RPT did not go down well with the shareholders, considering Empire Resorts is running out of cash and it was on the verge of filing for voluntary bankruptcy as it is incapable of settling its borrowings.

Furthermore, the stake purchase is expected to cost GenM more than RM538 million as Empire Resorts has stated that it needs additional funding from shareholders to keep it going, besides that it is taking it private.

Nonetheless, GenM defends that the investment is deemed a “worthwhile investment”.

Empire Resorts’ share price plunged to US$8.20 on news that the casino operator was considering a voluntary Chapter 11 bankruptcy. GenM is paying Lim US$9.74 per share for the stake. Empire Resorts’ share price bounced back, thanks to the privatisation offer of US$9.74.