Empire Resorts' remaining share is set for acquisition by Genting Malaysia.
Rewritten Article:
Genting Malaysia, the Malaysian powerhouse in the global gaming and hospitality industry, plans to take the driver's seat in Empire Resorts, a U.S.-based casino operator. They aim to acquire the remaining 10% economic interest they don't own, in a deal valued at roughly $80.7 million, consisting of $41 million in cold hard cash and taking over a $39.7 million loan. Regulatory approval is needed, but they're shooting for a Q2 close in FY2025.
This move would give Genting Malaysia the keys to Resorts World Catskills, Hudson Valley, and their online sportsbook platform, Resorts World Bet. However, analysts are sounding the caution alarms. Tushar Mohata and Alpa Aggarwal from Nomura view this move as negative, mainly because Empire Resorts has been swimming in the red for quite a while, with no apparent lifebuoy in sight. They also stress that consolidating Empire's financial results could further deepen Genting Malaysia's red ocean.
The concern escalates when we look at Genting Malaysia's recent Q4 2024 performance. Stumbling blocks like rising interest expenses, post-COVID recovery struggles, and operational costs that haven't been balanced by returns on capital expenditure have resulted in a dividend cut and a drop in share value. With Nomura downgrading the stock from "Buy" to "Reduce", fears about the investment's future are growing.
Maybank Investment Bank and Hong Leong Investment Bank aren't exactly painting rosy pictures either. HLIB, in particular, questions the perceived value of the deal. They estimate Empire's worth to be at an EV/EBITDA multiple of 72.7-far beyond the U.S. casino industry average hovering around 10.
The red flags multiply, with HLIB projecting the group's borrowings could surge by RM1.3 billion ($310 million), potentially pushing the gearing ratio to 1.15. Annual interest expenses might swell by up to RM70 million ($16.54 million) in FY2026-2027.
The woes don't end there. Analysts predict Empire-linked losses could shoot up, with Genting Malaysia's share of losses potentially increasing by RM23 million ($5.43 million) in FY2025. This could thin their profit margins by 3.5% over the next three years.
The acquisition of Empire Resorts seems fraught with financial risks. The fact that Empire Resorts has been swimming in the red for years, despite substantial investments, raises questions about its sustainable financial health[1]. Moreover, the high EV/EBITDA multiple suggests that Genting Malaysia might be overpaying for the acquisition[2]. The long-term competitiveness of the U.S. casino market is challenging, and addressing Empire Resorts' operational challenges could require substantial additional capital[3]. Therefore, investors should tread carefully before diving into this gaming likelihood.
- If Genting Malaysia consolidates Empire Resorts' financial results, it might further deepen the red ocean for Genting Malaysia, considering Empire Resorts' persistent losses and the high EV/EBITDA multiple, which could suggest overpayment.
- The acquisition of the remaining 10% economic interest in Empire Resorts could potentially increase Genting Malaysia's borrowings by RM1.3 billion ($310 million), resulting in a possible gearing ratio of 1.15 and potentially higher annual interest expenses of up to RM70 million ($16.54 million) in FY2026-2027.
- Analysts predict that the acquisition of Empire Resorts could lead to increased losses for Genting Malaysia, with potential share of losses increasing by RM23 million ($5.43 million) in FY2025, which could thin their profit margins by 3.5% over the next three years.
