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Alliance Stock Continues Rising After Cancellation of Slot Route Sale

27 June 2001

by David Strow

LAS VEGAS, Nevada -- June 27, 2001 -- Shares of Alliance Gaming Corp. continued gaining this morning, the second trading day after the Las Vegas company called off its plans to sell its Nevada slot route subsidiary United Coin Co.

Alliance stock traded at $39.70 this morning, up 81 cents. That followed a 6.3 percent rise Tuesday that saw the stock break its 52-week high.

Alliance officials told investors on a Tuesday conference call they believed the refinancing of the company's $230 million senior debt was just as important, "a critical step in our growth." Alliance estimated it will save $1 million per year in interest charges following the refinancing.

"It demonstrates confidence has been restored in our company," said Bob Miodunski, Alliance chief executive officer.

The planned $118 million sale of United Coin was terminated, Miodunski said, "because we felt the sizable and stable cash flow of America's largest slot route operator was a significant and important part of our success." Alliance had planned to reduce its $330 million debt load with proceeds from the sale.

"Bally Gaming (Alliance's slot manufacturing division) will continue to drive the company's growth, while our casinos and slot routes will continue to provide stable cash flow that will more than service our debt," Miodunski said. Moreover, he said the company won't have to pay federal income tax for at least the next two years, as the company carries forward tax credits from previous years of losses.

Bally should continue to show strong growth, Miodunski said. The company's first video slot game with newly developed technology, Popeye, should begin appearing in California within 45 days. After securing 10 licenses to produce slots based on popular cartoons, TV shows and celebrities, Miodunski said the company is now in negotiation for another 12 titles.

Popeye runs on Alliance's newly-developed "EVO" system, which uses a Pentium III chip and Windows NT software. Alliance does have some video slot products, Saxton said, but they run on computer technology that's five or six years old.

"It's a very weak offering right now," Saxton said. "EVO gets us leap years ahead of where we were before."

Asked by analysts whether Alliance would still consider selling its two casinos or its German operations, Chief Financial Officer Robert Saxton wouldn't rule it out.

"We're not inclined to sell anything right now," Saxton said. "That's not to say we wouldn't consider an alternative strategy, but for the first time in a long time, we have time to focus on building the businesses we have in place."

Saxton also wouldn't rule out a stock split, following the company's meteoric rise in share price.

"Our attention over the last six months has been directed to our refinancing," Saxton said. "As the stock (price) increases, it becomes an issue we'll look at more. It may be something we'll do in the future, but there's nothing to announce today."

In a report issued today, CIBC World Markets hiked Alliance's price target from $31 to $42 and reiterated a buy rating. CIBC gaming analyst William Schmitt also raised his fiscal 2002 estimates; cash flow estimates were raised from $96 million to $101 million, while earnings per share estimates were hiked from $2.57 to $3.10 per share ($23.6 million in net income).

"The slot route business is a stable cash flow-generating business that Alliance can use to fund ongoing R&D efforts," Schmitt wrote. "We take a very favorable view of the decision to terminate this transaction."

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