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Alliance Gaming Stock Price Sinks as Investors Complain

5 January 2000

by David Strow

Frustrations over the continued struggles of Alliance Gaming Corp. boiled over Tuesday, as investors grilled company officials at the company's annual meeting -- and shareholders engaged in a huge sell-off of Alliance stock.

Las Vegas-based Alliance (OTC: ALLY) fell 75 cents Tuesday to $2.25, a 52-week low. The 25 percent drop came on trading volume seven times higher than normal and the stock dipped below $2 at one point. It recovered 25 cents a share Wednesday, to close at $2.50.

Alliance announced Monday that it expected to report a loss of 70 cents per share for the quarter ending Dec. 31. That would badly miss Wall Street's consensus expectation of a 14-cent-per-share profit.

In the last quarter, ending Sept. 30, Alliance reported a 4-cent-per-share profit, missing analyst expectations by 71 percent.

"I don't think (investors) are looking at a very good picture," said Dave Ehlers, chairman of Las Vegas Investment Advisors. "The market is very skeptical of what residual value will be left there once they pay off the debt ... whether you'll have anything there."

Alliance said it is working to control costs by cutting back -- on Monday, it said it had laid off 80 employees and was reorganizing its Bally Gaming and Systems unit. Charges from this restructuring increased Alliance's losses by 10 cents per share for the December quarter, but the company said it would be able to save $8 million a year through the effort.

The company also said it was continuing its efforts to sell off a number of its assets, including United Coin, a big Nevada slot route operator. Proceeds from these sales will be used to pay down Alliance's debt, which now exceeds $330 million.

Newly appointed Chief Operating Officer Robert Miodunski tried to assure investors that he was working diligently to right the ship -- but said he was loathe to provide too much detail on what the company's long-term plans were, because analyst and investor expectations had been missed so often.

But at Tuesday's shareholder meeting, shareholders expressed skepticism, and some of the loudest critics received applause.

"Quite frankly, all you've been doing is screwing the shareholders," said irate shareholder Stephen Gordon. "You people are paid to do only one thing -- increase shareholder value. If you can't do that, get someone in there who can.

"I'm a little tired of this nonsense. The only way you can increase shareholder value is to put the money back that you're not earning."

Miodunski, promoted to the COO's job in November, replied that he needed more time to correct the issues facing the company.

"We've been trying to get our arms around the business," Miodunski said. "You've got to allow me a little more time to get the wheels under the car before we can move forward.

"I share your frustrations."

Another shareholder expressed confidence in Miodunski, who also serves as president of Bally Gaming.

"But one of my fears is that this man who knows the business (Miodunski) will get the axe from the board," the shareholder said. "It would be great if (Miodunski) were here a year from now, because he's got a lot of shares.

"You've got to have a professional running this company. This man knows the industry."

Miodunski currently owns 64,500 shares of Alliance stock.

Another shareholder questioned why Alliance was trying to sell one of its most valuable assets, United Coin. Miodunski said a final decision on that sale wouldn't be made until spring, but said the company was still actively shopping the division.

"We'll be evaluating the properties this spring and we'll be making a decision then, to see if it still makes sense (to sell the properties)," Miodunski said.

One division that isn't for sale right now, Miodunski said after the meeting, is Bally Wulff. This division, Alliance's German subsidiary, has struggled badly -- and most analysts blame it for most of the difficulties now facing the company.

"Its performance is so poor right now that we wouldn't receive adequate shareholder value for it," Miodunski said. "It's a difficult business to manage because it's so far away."

When asked if Alliance would be willing to be acquired, Miodunski said that was not an active consideration.

"Alliance Gaming is not for sale," he told shareholders. "That doesn't mean we wouldn't consider a merger or acquisition offer. If there was an opportunity in the form of a merger or acquisition the board would consider it."

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