Scientific Games Corp
) recently announced that it will acquire slot-machine maker, Bally
) for $3.3 billion in cash. The company is paying $83.30 per share,
which is 38.4% premium to Bally's closing price of $60.17 on Jul
Including refinancing of Bally's existing net debt, the purchase
price would amount to $5.1 billion. Shares of Scientific Games were
up 2.81% ($0.24) while Bally shares surged 29.13% ($17.53)
following the news.
The boards of both the companies have approved the proposal for
acquisition. The approvals of Bally's shareholders and antitrust
regulators are however still pending. Nevertheless, the transaction
is expected to close in early 2015.
Recently, the company announced the organizational structure for
the combined entity. Post-merger, Bally Technologies will function
as a wholly-owned subsidiary of Scientific Games.
Upon the closure of the transaction, Gavin Isaacs will continue
serving as the President and Chief Executive Officer (CEO) of
Scientific Games. David Robbins, Chairman of the Board of
Directors of Bally will join the Board of Scientific Games where he
will take up the role of Vice-Chairman.
Scientific Games expects to incur $75 million as acquisition
related expenses and another $40 million in the form of capital
costs. Post-acquisition, Scientific Games expects $220 million in
annual cost savings and another $25 million in annual
capital-expenditure savings. .
Scientific Games' acquisition of Bally Technologies will likely
diversify the former's product portfolio and expand its global
footprint. Moreover, it eliminates one of the nearest competitors,
which will help in expanding market share.
Acquisitions have been a part of Scientific Game's growth story. In
2013, the company bought WMS Industries for $1.42 billion. Other
acquisitions include Barcrest Group Limited (2011), Sceptre Leisure
Solutions (2010) and GameLogic (2010).
Bally acquisition will help Scientific Games to face competition
from the combined entity of GTECH and International Game Technology
) in the long run. Per Bloomberg, the inclusion of SHFL
Entertainment, which Bally bought in 2013 gives a slight
competitive edge to Scientific Games against GTECH.
However, we believe that the acquisition will put Scientific Games
balance sheet under further pressure, as the company is most likely
to opt for debt financing to buy Bally. This may hurt profitability
due to lower top-line growth. Sluggish casino market that continues
to face weak consumer spending and increasing competition from
Internet based game providers such as Konami (
) is expected to remain a major headwind going forward.
Currently, Scientific Games has a Zacks Rank #5 (Strong Sell).
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