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Howard Stutz

IGT-GTECH deal called plus for industry

17 July 2014

LAS VEGAS -- IGT - International Game Technology’s $6.4 billion buyout at the hands of lottery giant GTECH Corporation was all about timing.

After years without consolidation of the manufacturing side of the gaming industry, the deal between Italy-based GTECH and Nevada-based IGT marked the fourth major transaction in the sector since late last year.

It also creates the largest supplier and manufacturer to service both casino and lottery industries.

IGT CEO Patti Hart viewed the transaction, announced late Tuesday night, as part of the natural cycle of fragmentation and consolidation experienced by all industries.

She said consolidation on the manufacturing side will spur heightened innovation in the gaming industry, which is lacking when there are too many players in the market.

“This opportunity comes along once in a CEO’s lifetime,” Hart said in an interview Wednesday. “The ability to start from scratch and create a company with this strength is all about the perfect timing.”

GTECH, the world’s largest lottery systems provider and manager, will pay $4.7 billion in cash and stock and assume $1.7 billion of IGT’s debt to control the slot machine giant.

Under terms of the agreement, IGT and GTECH will combine under a newly formed holding company with corporate offices in the United Kingdom and maintain operating headquarters in Las Vegas, Providence, R.I., and Rome.

Hart said corporate integration details still must be worked out but dismissed a notion that IGT might disappear after the transaction. She said IGT could continue as the gaming operating subsidiary of GTECH.

IGT employs 4,800 workers worldwide, with roughly 3,000 based in Nevada. Hart said the company has no plans close its corporate manufacturing facility in Reno or to lay off employees.

“One of the things that was attractive to GTECH was the utilization of our facilities in Nevada,” Hart said. “It’s one of the better places to be in the gaming industry in terms of transportation and the labor pool.”

The investment community quickly affirmed its support for the transaction, which gives a boost to IGT. The company experienced a 27 percent decline in revenue between 2007 and 2009 while its share of slot machine sales to North American casinos fell more than 60 percent last year because of competition from other manufacturers.

Earlier this year, IGT reduced its global workforce by 7 percent to cut costs as profits declined 66 percent in the quarter that ended March 31.

“Ultimately, we believe the deal made the most sense for GTECH given the company’s interest in expanding into the U.S. casino market,” Eilers Research founder Todd Eilers said. “We also believe it was the best move for IGT given the competitive pressures within the U.S. market.”

IGT all but announced it was up for sale last month by saying it was exploring “a broad range of strategic alternatives” and it became known that it had hired an investment bank to field offers.

Macquare Securities gaming analyst Chad Beynon said GTECH “served as the white knight,” saving IGT.

GTECH is 60 percent owned by Italy’s De Agostini Group. The company, formerly known as Lottomatica, in 2006 bought Rhode Island-based GTECH, the U.S.’s largest lottery company, taking the GTECH name.

GTECH, which has more than 8,600 employees, also owns slot machine manufacturers Atronic and Spielo.

Beynon said GTECH was enticed by IGT’s interactive division, which includes social gaming giant DoubleDown Casino and slot machine products that include the industry-leading Wheel of Fortune brand.

Shares of IGT on the New York Stock Exchange closed Wednesday at $16.92, a 9.16 percent gain.

Under the terms of the transaction, IGT shareholders will receive $18.25 per share, which includes cash and shares in the new company. The new company will trade on the NYSE under the GTECH name. GTECH shareholders will exchange each of their existing GTECH shares for one share in the new company, and will own 80 percent of the new company.

When the deal closes IGT’s shares will cease trading on the New York market and GTECH’s shares will cease trading on the Borsa Italiana.

The transaction will take as long as a year to finalize, with approvals required from shareholders of both companies as well as state and federal regulators.

Hart said the combined company would be “in the middle of the Fortune 500 list” today, with more than $6 billion in revenues and more than $2 billion in cash flow.

Siting the new company’s corporate headquarters in the United Kingdom also has tax benefits, especially for GTECH. Italy has some of the highest corporate taxes in Europe.

Analysts said the deal has positive implications for other gaming equipment manufacturers.

In 2013 Bally Technologies spent $1.3 billion for SHFL entertainment while lottery provider Scientific Games’ bought slot machine maker WMS Industries for $1.5 billion. Earlier this month, Australian slot machine builder Aristocrat Technologies paid $1.28 billion for Video Gaming Technologies.

“Fundamentally the largest player in the sector, IGT, will likely be at least somewhat operationally distracted with this transaction working to a closing,” said J.P. Morgan gaming analyst Joe Greff.
IGT-GTECH deal called plus for industry is republished from