Deal Background 

Okada Manila, the largest integrated resort in the Philippines, announced a merger with 26 Capital in a deal valuing the company at an enterprise value of $2.6 billion on October 16th, 2021. The resort has 35,000 sq meters of gaping space, boasting 399 gaming tables and 4,263 electronic gaming machines. On the other hand, the SPAC merging with Okada is 26 Capital, led by Jason Ader, who has an extensive track record both across gaming and hospitality. Between 2009 and 2016, Ader held a position in the gaming company Las Vegas Sands as an independent director.

When the parties initially announced a deal ranging nearly a year and a half prior, the merger is still yet to go through, with a tug of war for power between Tiger Resorts Leisure & Entertainment (current management working with the SPAC team) and a group led by Kazuo Okada. In fact, the chances of the SPAC deal going through are inextricably linked with the ultimate fate of its eccentric billionaire founder Okada, who has been in conflict with the firm for over six years. To understand the current boardroom dynamics, it’s important to understand Okada’s foundations and the subsequent power struggle between him and TRLEI. 

For those unfamiliar, Okada, often referred to as the ‘Pachinko Kind,’ largely made his fortunes in the Vegas gaming industry in the early 70s. He founded Universal Entertainment in 1969, manufacturing coin-operated games for children, but later pivoted to slot machine manufacturing after his first trip to Vegas. He coupled the ‘near miss’ feature of the pachinko machines in Japan with the slot machines of Vegas (referred to as pachislot machines), which made the machines popular and funded the growth of Universal for over four decades.

Okada was introduced to las-vegas casino tycoon Steve Wynn in 2000 after the latter had lost his company Mirage Resorts in a hostile takeover to MGM Grand. Okada subsequently invested $380 million into Wynn’s new company called Wynn Resorts, with plans of building a casino in Las Vegas in 2005 and a second one in 2006 in Macau. He also proposed plans to build a casino in Entertainment City in Manila, but Wynn declined, and Okada proceeded alone, with the rest being history. 

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Boardroom Battle 

Okada Manilla was unveiled to the public in July 2016 as a $2.4 billion integrated hotel, resort, and casino, which was his biggest investment to date under Universal’s Philippines arm TRLEI. The idea was simple, to lure Chinese tourist gamblers away from Macau into the quickly developing Philippines.

While both Macau ($36 billion) and Las Vegas ($12 billion) bought in more revenues than the Philippines, the rapid development and reputation as a tourist hot spot have enabled the country to grow gaming revenues from $2.9 billion in 2016 to $4.6 billion in 2019, making it an attractive market. While things initially went according to plan for Okada, the Manilla dream turned into a nightmare a few months later, with him being ousted from the boards of Universal and TRLEI for misappropriating funds.

More specifically, he allegedly improperly transferred $17.3 million in TRLEI funds to his bank account and another $2 million in funds from another account belonging to Okada Manilla. Okada has long maintained his stance that he’s innocent and that the group currently leading TRLIE, namely CEO Jun Fujimoto and Okada’s sons, plotted for his exit. Five years after being in exile, Okada returned again, this time armed with the Philippines Supreme Court ordering a status quo ante order (basically asking things to be restated as they were in 2017). 

The TRLIE group argued that since its holding company was registered in Hong Kong, it did not have to abide by the decision of the Philippines court. Universal claimed that Okada, along with members of the police, representatives of the Philippines regulator PAGCOR, and court officials entered the property and took control for two months. TRLIE claims that the Saga, which lasted two months, was a ‘violent invasion,’ while Okada maintains that it was merely a peaceful negotiation that was merely enforcing the court’s order.

In the same period, TRLIE claimed that Okada’s subordinates had destroyed contracts and other evidential documents, seizing real assets and falsifying digital data. In September 2022, regulator PAGCOR withdrew its recognition of Okada’s leadership, paving the way for TRLIE’s leadership to take over. The SPAC merging with the integrated resort decided to extend the merger timeline by a year now that things had settled down. When last enquired, dealmakers were still confident of completing the deal by the end of 2022, but things remain delicately balanced, and as things stand, there is too much uncertainty for investors. 

Bottom Line 

SPAC 26 Capital, led by gaming veteran Jason Ader, aimed to capitalize on the growing demand for gaming in the Philippines by taking the integrated casino resort Okada Manilla public. However, a long, drawn-out board battle that started out in 2017 between current management TRLIE and founder Okada has wreaked havoc and caused confusion. As things stand, the deal could still go through, but any further battle for control could firmly put the chances of the deal going through to zero.