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More twists ahead in fight over Macau's biggest corporate empire

Pansy Ho's move to bolster influence over casino company SJM to face challenges

SJM is the corporate successor to the old Macau casino monopoly Stanley Ho, 97, established in the 1960s centered on the Casino Lisboa.    © Reuters

HONG KONG -- Investors welcomed moves by Pansy Ho Chiu-king this week to reinforce her influence over the Macau casino empire built by her father, Stanley Ho Hung-sun. The power grab, however, could have consequences for SJM Holdings and other companies controlled by the aging tycoon's four families.

Pansy Ho's maneuvering is poised to upset the uneasy balance of interests among her father's 17 children and their mothers, especially SJM Managing Director Angela Leong On-kei, who is the company's second-largest shareholder and known as Stanley's fourth wife. Pansy and her kin hold leading positions at three of Macau's six casino operators, though the city has regulations intended to discourage executives from holding influential roles in competing concessionaires.

SJM is the corporate successor to the old Macau casino monopoly Stanley Ho, 97, established in the 1960s centered on the Casino Lisboa. While the company still operates more casinos than any of its five Macau competitors, SJM's market share and stock price have been tumbling in recent years as its rivals have invested billions of dollars to open sprawling gaming resorts in the city's Cotai district.

SJM's Hong Kong-listed shares have risen 12.9% since the disclosure on Wednesday evening of a new pact among four shareholders of Sociedade de Turismo e Diversoes de Macau, or STDM, SJM's majority shareholder: Pansy Ho, two family investment companies, and the foundation set up by one of Stanley Ho's original business partners, the late Henry Fok.

The agreement of the four parties to act together to exert control of STDM suggested clearer leadership could be emerging at SJM. Under the pact, the four shareholders agreed to join forces in future elections for the chair and other board roles at SJM, where Pansy does not have a formal position.

Since the formal retirement of Stanley Ho as SJM's chairman last year, the position has been divided among four successors: Leong, Henry Fok's son Timothy, Pansy's sister Daisy, and Ambrose So Shu-fai, the chief executive who was Stanley's longtime top lieutenant.

Vitaly Umansky, gaming analyst for Sanford C. Bernstein in Hong Kong, is a skeptic of the new shareholder pact. Calling SJM's price spike "not warranted," he wrote in a follow-up report that "the Byzantine corporate ownership and governance structure of SJM is not alleviated by this agreement."

While calling the pact "a clear challenge to the status quo," he said he would keep his "underperform" rating on SJM "until we see more clarity on the potential management change, and signs of operational turnaround."

One risk is that Pansy Ho's maneuvering could affect SJM's close links with Leong's own business interests. She and her son Arnaldo Ho are working on a project to develop the 5 billion Hong Kong dollar ($637.3 million) Lisboeta resort on a site adjacent to the HK$36 billion Grand Lisboa Palace project that SJM hopes to open in Cotai later this year.

"There will likely be a cost to SJM" to work out a new arrangement with Leong regarding the neighboring developments, Umansky said.

Aside from Leong, Pansy's plans for STDM may also be challenged by Michael Hotung, son of Stanley Ho's late sister Winnie Ho. According to local press reports, Hotung filed suit earlier this month against STDM, his uncle and other relatives, alleging they owed his mother's estate HK$2 billion for unpaid dividends on her STDM shareholdings, the latest in a long string of lawsuits between the siblings.

Another complication for SJM involves Pansy Ho's multiple roles. She is chairman and managing director of Shun Tak Holdings, which controls Macau's biggest ferry operator and a stake in STDM. She is also co-chairperson of casino operator MGM China Holdings, in which she personally holds a 22.5% stake.

"If Pansy Ho takes a more active role in SJM and exerts control, it may make her position at MGM China more difficult," Umansky said. "This could eventually lead to Pansy Ho seeking to divest her interest in MGM China."

While Shun Tak's shares have risen 7.3% since the STDM shareholding announcement, shares of MGM China have been weakening recently. In Umansky's view, the potential exit from MGM China could step up pressure for U.S. casino company MGM Resorts International to divest its controlling stake.

Umasnky noted that MGM Resorts has been under pressure from activist hedge funds and recently added activist investor Keith Meister, who helped lead a successful drive for KFC parent company Yum Brands to spin off its China business, to its board.

As Ho family members jockey for influence, SJM could continue to lose market share.

Daiwa analyst Andrew Chung, who initiated coverage of the company on Wednesday with an "outperform" rating, nevertheless forecast that its market share of Macau's gaming market will slip this year to 15% from 16.3% in 2017. SJM's government gaming concession is also set to expire in March 2020, but few observers see any risk that it will not be at least temporarily extended.

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