Share price of
International Game Technology (
surged 14.39% ($1.80) to close at $14.31 on Jun 9, following
reports that the company is planning to go private. Per Reuters,
IGT management has appointed
Morgan Stanley (
to search sale options.
For the last two months, IGT has been looking for prospective
bidders that include gaming companies as well as private equity
firms. Year-to-date, share price of the company has declined
19.24%, which is the primary reason behind the idea of going
private. IGT is currently valued at approximately $3.5 billion.
IGT has been facing significant challenges due to the tepid
economic conditions that are impacting its gaming business,
resulting in falling domestic replacement and lower play levels as
well as a mix-shift to lower-yielding standalone lease operation
games. The casino sector has witnessed a tighter spending due to
concerns about unemployment levels and the lackluster macroeconomic
Currently, gaming operators are replacing existing machines at a
much slower rate than they have historically, primarily due to the
challenging environment and the need to preserve cash.
Additionally, intensifying competition from the likes of
Bally Technologies (
in its core as well as interactive markets remains a major
IGT reported an unimpressive second-quarter of fiscal 2014.
Revenues decreased 14.5% year over year to $512.8 million. Product
sales and Gaming Operations declined 27.4% and 9.4% year over year,
Average revenue per unit per day decreased 4.6% from the year-ago
quarter to $47.00. Gaming Operations installed base of 53,400 units
was down from 56,700 units in the year-ago quarter.
Moreover, increasing investments in product development will
increase operating costs, going forward. In the recently concluded
second quarter, operating expenses as percentage of revenues
increased 670 basis points from the year-ago quarter to 36.7%.
We also remain concerned about IGT's highly leveraged balance
sheet. At the end of Mar 31, 2014, the company had approximately
$2.20 billion in total debt. With a net debt position (debt less
cash) of $7.43 per share, the investment risk remains quite high
for the company.
Nevertheless, we believe that innovative product pipeline, growth
from cloud-based products in international markets and strong
improvement in the DoubleDown business make IGT an interesting
acquisition candidate at present.
However, mergers and acquisitions in the gaming industry face
significant regulatory hurdles, which will be a major headwind for
a prospective bidder.
Currently, IGT has a Zacks Rank #3 (Hold).
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INTL GAME TECH (IGT): Free Stock Analysis
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