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Gaming Guru

Howard Stutz

IGT shareholder group issues "fight letter"

29 January 2013

LAS VEGAS -- A dissident shareholder group seeking to gain three seats on the IGT - International Game Technology board of directors said Monday that current management has so neglected the company's core business it has "alienated" casino customers, causing financial performance to deteriorate.

In a "fight letter" to shareholders filed Monday with the U.S. Securities and Exchange Commission, a group headed by former IGT Chairman Charles Mathewson and analyst-turned-investor Jason Ader said the company's price per share has fallen more than 20 percent in the past three years because of poor management decisions.

The group, headed by New York-based Ader Investment Management, said it raised concerns about the company's direction last September, which caused IGT's leadership to take "superficial actions" in recent months, leading to a slight uptick in IGT shares.

Last week, IGT said its first-quarter earnings grew 41 percent while revenues increased 19 percent.

Mathewson and two others want to replace three members of IGT's eight-person board at the annual shareholder meeting March 5 in Las Vegas.

IGT asked shareholders to re-elect the entire board, saying Mathewson, 84, who served as IGT chairman for 17 years, would bring an "outmoded" business model to the company.

An IGT spokeswoman Monday declined comment on the Ader filing.

Ader and Mathewson control 3 percent of IGT's outstanding shares. In the letter to shareholders, the group said IGT's incumbent directors own less than 0.1 percent of the outstanding shares.

"Excluding stock options, the Ader Group represents an ownership interest in IGT that is more than 100 times the aggregate ownership interest of the three directors we seek to replace," Ader wrote.

IGT shares closed at $15.27 Monday on the New York Stock Exchange , up 15 cents, or 0.99 percent.

Ader's letter spelled out several concerns his group has with the current board and management, including a series of "costly non-strategic acquisitions" outside IGT's core business of slot machine development and sales, one of which has resulted in a "substantial" reorganization charge.

"We believe the lack of focus by the incumbent board and the management team on your company's core business has caused an unsustainable deterioration in the core business demonstrated by the company's market share losses, degradation in customer relationships and loss of key employee talent," Ader said.

The group said acquisitions over the past two years of social gaming and European Internet gaming businesses caused IGT executives to neglect the core slot machine business.

IGT's purchased Swedish online gaming provider Entraction in 2011 for $115 million, but the company shut down the business last summer. In an interview, CEO Patti Hart said IGT wrote off "just $15 million" in conjunction with the Entraction deal.

In the letter, Ader said IGT should refocus on its gaming operations, including its reach into Asia and Latin America, which could reposition the company for sales in the U.S.

The Ader group also proposed several administrative expense reductions, including sale of a recently acquired private jet.

"We believe that IGT is at a critical point and that there are tremendous opportunities to create shareholder value," Ader said. "Our action plan would include significant revenue enhancement opportunities in both gaming operations and product sales. We also expect that substantial cost savings are achievable."

Ader said IGT's current board and management lack gaming experience. Of the eight members, only Chairman Phil Satre, the retired chairman of Harrah's Entertainment, and Paget Alves, a one-time director of GTech Holding, have gaming backgrounds. Former Gov. Bob Miller, who was appointed to the IGT board in 2000, is the longest-serving board member.

Hart, who has been a board member since 2006 and was named CEO in 2009, was heavily criticized in the Ader letter for the direction she has taken the company, as well for her previous experience as a CEO in the technology field.

Ader said three tech companies where Hart was CEO experienced stock price declines of 82 percent, 100 percent and 45.1 percent during her tenure.

Her Yahoo board membership, which she resigned in May, was also questioned. Hart headed a special committee that hired CEO Scott Thompson, who resigned less than five months later after an investigation of his academic credentials.

"Under current management and the incumbent board, IGT has repeatedly made decisions regarding the operations and strategic direction of your company that have negatively impacted shareholder value," Ader said.
IGT shareholder group issues "fight letter" is republished from