Share price soars after sale report
A report by Reuters last week suggesting that leading slot manufacturer International Game Technology is for sale sent shares of the supplier soaring 14 percent on the New York Stock Exchange.
The Reuters report said IGT, the world’s largest slot manufacturer, has retained Morgan Stanley to assess a sale of the company. According to the report, Las Vegas-based IGT has been exploring a sale for months, hosting presentations by management to potential suitors and citing other gambling companies and private equity firms as potential buyers.
The 14 percent jump of IGT shares to $14.31 followed a nosedive in which the stock had fallen 31 percent this year. Flat slot machine sales sent revenues for the second quarter down 15 percent to $512.8 million. Net income fell 67 percent to $25.7 million. One of the few bright spots for the company has been its social gaming business, with rising revenues pouring in from its Double Down Casino on Facebook.
Steven Wiecynski, an analyst for Stifel Nicolas & Co., said in a research note that IGT could be sold for more than $20 a share. “We still view a private equity bid as most likely,” he said. He named GTECH SpA and Konami Corporation as two rival slot manufacturers with the resources and balance sheet capacity to effect a buyout of the slot giant.
“Investors have been looking for the company to do something to create shareholder value following disappointing financial results,” Todd Eilers, founder of Eilers Research, told the Las Vegas Review-Journal.
Union Gaming published a comprehensive report on the likely outcome if such a sale is in fact being pursued.
“IGT is the largest gaming equipment provider with a market capitalization of roughly $3.3 billion,” the report said. “The company has been the proverbial 800-pound gorilla in the equipment space with commanding floor shares of domestic casinos. In recent years, the company has lost some of its large historic footprint (and the trend continues) as it has focused away from its core competencies (namely making slot machines) in favor of social gaming. Generally though, growth has slowed in aggregate, for the industry and the company.
“The list of potential suitors for the company would all face leverage or regulatory hurdles (not to mention length of close), and we question whether a deal ultimately comes to fruition—however, that thinking does dwindle the list of potential buyers in our view. In particular, a deal could make more sense for a financial buyer (perhaps someone already licensed in gaming) attracted by IGT’s massive free cash flow generation (est. $300 million in FY2015).
“In addition, such a buyer likely would have a strong view on how to extract value, fundamentally and strategically. The prospect of a strategic buyer (competitor) is far less likely in our view, primarily due to resultant leverage.”
The Union Gaming Report says a financial or private equity firm would be the most likely candidate to buy IGT, and also named tech or media firms as likely suitors. It said that other slot-makers are less likely, naming Bally Technologies, Aristocrat Technologies, Novomatic, GTECH and Konami as “unlikely buyers.”
The Reuters report said IGT is hosting management presentations for prospective buyers at this time, quoting unnamed sources.
IGT declined to comment on the reports, other than to tell Bloomberg’s BusinessWeek, “As the industry leader, in a market that has been consolidating, it is not unusual for IGT to be a topic of speculation.” Morgan Stanley also declined comment, according to Reuters.
