Wynn Resorts Ltd. Disposes Of A Major Legal Headache

This article originally appeared in the Motley Fool.

Wynn Resorts (NASDAQ:WYNN) put one of its biggest sources of uncertainty behind it on Thursday by settling a lawsuit with Universal Entertainment Corp., and its subsidiary, Aruze USA Inc., which were controlled by Kazuo Okada. In 2012, Wynn redeemed Okada's 20% stake in the company after finding him to be an "unsuitable" partner, giving him a promissory note worth $1.94 billion with an interest rate of 2% that came due on Feb. 18, 2022. Wynn paid an implied value of $79.02 per share.

In Thursday's settlement, Wynn agreed to pay the full $1.94 billion principal amount for the redemption, plus another $463.6 million to "settle allegations surrounding the interest rate on the redemption note." Universal also agreed to cease considering itself a party to an agreement between itself, Steve Wynn and his ex-wife, Elaine Wynn. At the end of the day, this is a huge win for Wynn Resorts.

Ending this legal battle helps clear up some of the murkiness around the company's future without Steve Wynn at its helm. It also paves the way toward closing the legal dispute between the ex-spouses, which would free up Elaine Wynn to sell shares or vote them differently than Steve Wynn -- two things she's barred from doing now.

A "Buyback" At A Discount

The effective price of the redemption of Okada's shares is now $97.76 per share. That's an improvement from the prior number, but still a steep discount to where shares trade today. This also ensures that the redemption will happen.

It's worth noting that the buyback will stretch Wynn Resorts' balance sheet. The company had $3.13 billion in cash at the end of 2017 and $9.63 billion of debt, not including $1.3 billion yet to be spent on the Wynn Boston Harbor project. The company may need to issue debt to fund both the note redemption and its growth plans.

Dispensing with the Universal lawsuit and the uncertainty it created isn't a game changer, but it's an incremental positive for Wynn Resorts. And after Steve Wynn's resignation earlier this year, it could clear the way for the company's new management team to chart its own path with less legacy baggage holding them back.

Travis Hoium owns shares of Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.