Morningstar | Melco Resorts Will Acquire its Parents’ Cyprus Project
Narrow-moat Melco Resorts has agreed to acquire, from its parent Melco International Development, the latter’s 75% stake in ICR Cyprus Holdings for approximately USD 375 million, or 18.5 million ADS', or 4% of Melco Resorts new shares. After the transaction, Melco International’s stake in Melco Resorts will increase to 56%, from 54%, by March 2019. Both Melco Resorts and Melco International Development are controlled by Lawrence Ho. This related party transaction raises a concern that the parent company could be selling the Cyprus project to its subsidiary, in which the parent only holds 54%. The transaction is expected to be completed before Sept. 20, 2019. We maintain our air value estimate of USD 21 unchanged given the transaction only makes up only 3% of Melco Resorts’ enterprise value on our estimate.ICR Cyprus is developing the City of Dreams Mediterranean integrated resort in Cyprus; which is expected to be the largest and premier integrated resort in Europe when it opens in 2021; with 100 tables, 1,000 slots and 500 rooms. The first 15 years of ICR Cyprus’ 30-year casino gaming licence, starting in June 2017, are exclusive. Currently, ICR Cyprus runs a casino, which opened in Limassol in June 2018, and will cease operating after the City of Dreams Mediterranean opens. It has also been operating two satellite casinos in Nicosia and Larnaca, Cyprus since December 2018, and expects to open two additional satellite casinos in Paphos and Ayia Napa during 2019.
Melco Resorts will provide some management services to ICR Cyprus for EUR 2 million per year and has the right to receive preference shares in the gaming licence-holding subsidiary of ICR Cyprus, which will provide the right to a preferential dividend, among other terms.
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