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Tags: greenmail | wynn | casino | stocks

Is Greenmail the New Black?

Is Greenmail the New Black?

By    |   Thursday, 01 February 2018 05:18 PM EST

In the debt-fueled 1980s, any corporate raider with enough cash could buy up shares of a company. If the company was undervalued, they might agree to a buyout. If they didn’t want someone from the outside taking control, they had a few options.

First, they might incorporate so-called “poison pill” provisions. These provisions, such as locking in corporate board seats or requiring supermajority decisions by shareholders, might have scared off some corporate raiders.

Eventually, some of the raiders caught on. They could buy a large block of stock, and threaten to take over… but also give companies an out. By offering to sell their shares back to the company for a higher price, the company could fend off a hostile takeover, and the corporate raider could still make a bundle in the short-term.

This practice came to be known as greenmail.

Today, we’re seeing a new trend. In a blend of finance and politics, social justice warriors are targeting the boardroom.

Case in point, consider Steve Wynn, billionaire and CEO of the Wynn Corporation (WYNN). Shares of the casino company tanked over 10 percent last Friday—and continued selling off on Monday.

Why? Because of allegations that Wynn is yet the latest in a series of men in positions of power using it to harass women.

Are the allegations true? I don’t know. Just as I don’t know about the truth of the allegations that flew across Hollywood last year (and are still flying). I know some people have reputations for that sort of thing (and have for years), while other claims are pretty hard to believe.

This claim against Wynn is essentially rehashed from his divorce proceedings over a year ago. There isn’t any new information here. For now.

But this isn’t Wynn’s first expensive disaster. He’s also the man with the $40 million dollar elbow—a reference to a time in 2006 when the nearly-blind Wynn accidentally punctured a Picasso painting he was about to sell.

To me, that’s part of the difficulty in believe the accusations. If your eyesight is going, it’s easy to innocently bump into someone. In today’s litigious and harassment-claim-heavy world, however, anything goes.

So far, the price tag is far higher. Shares of Wynn have lost over $20 billion in value in the past week thanks to these allegations. That’s a huge chunk of change. Any anyone who saw this harassment claim coming could have shorted the stock and made a bundle along the way.

This might be a new type of greenmail: using the threat of claims (whether true or not) to tank a company’s stock. It’s been done before. Typically, the damage from such news is short-lasting.

And it’s easy to see Wynn being the victim of this new type of social justice greenmail – after all, Wynn is a prominent Republican fundraiser, and hugely responsible for the party’s burgeoning coffers. The GOP ended last year with over $38 million cash in the bank. The DNC? Under $500k. It’s easy to see Steve—and his business—as a target as a result. And any rumor leading to a sharp selloff in shares could have meant fast profits for anyone who shorted the stock or bought put options. There’s how you make fast money with accusations that don’t have to be true in today’s world.

I know, I know, this sounds like the stuff of conspiracy. But stranger things have happened. And in the markets where many players are looking to make a fast buck, even stranger things will happen.

What happens to Wynn from here? Maybe he’ll gracefully retire in the coming weeks. That could be an impediment to the company’s brand. After all, he’s the man who had the foresight to develop the Las Vegas strip from a sleazy, mob-run venue to a family-friendly gambling haven that it is today. His work in Macau, likewise, has been to essentially recreate the Vegas strip overseas. More than likely he’ll deny the rumors and fight things. Time will tell.

What really matters is that any publicly-traded company is far more than one man. Even without Steve Wynn at the helm, it’s hard to see a casino company failing. And as I’ve said before, issues that impact a just one man at a corporation tend to be short-lasting for the company’s shares.

I see this blowing over in the next six to nine months. The news cycle will move on to the next accusation. Shares will eventually rebound. Buying them now may prove to be a simple way to beat the market in the coming months. Or, you could look into buying a long-dated call and making a leveraged bet on a heavily-beaten down casino stock. That wouldn’t be the worst way to gamble on the sector.

Personally, I expect shares to languish for a while before heading higher. I’m looking at selling put options instead. By selling time premium, I’m betting that the news cycle will find some other company CEO worthy of media attention. Whether Steve Wynn stays or goes, his high-end casino properties will endure. And they’ll continue to make a bundle for investors who have the patience to see past the latest headlines and focus on the fundamentals and facts, not the rumors.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.

© 2023 Newsmax Finance. All rights reserved.

In the debt-fueled 1980's, any corporate raider with enough cash could buy up shares of a company. If the company was undervalued, they might agree to a buyout. If they didn't want someone from the outside taking control, they had a few options.First, they might incorporate...
greenmail, wynn, casino, stocks
Thursday, 01 February 2018 05:18 PM
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