IGT Spends $90 Million to Enter Online Gaming

International Game Technology spent $90 million Wednesday to buy a privately owned Internet gaming provider, presenting the Reno-based slot machine manufacturer its first access to the expanding online gambling market.

The transaction, which is expected to close in August, gives IGT Internet gaming technology, content and services now owned by San Francisco-based WagerWorks, which also has offices in England.

WagerWorks sells content to several British Isles-based Internet gaming sites, including the World Poker Tour's online casino and a site owned by Richard Branson's Virgin Group Ltd. WagerWorks provided content for MGM Mirage's short-lived experiment with Internet gaming.

WagerWorks has agreements with Sony Corp. and Hasbro to use the Wheel of Fortune and Monopoly brands online.

IGT Chairman and Chief Executive Officer TJ Matthews said the acquisition will let his company distribute games across new channels, including the Internet, mobile devices -- such as wireless phones and personal digital assistants -- and interactive television.

IGT's stock price has taken a beating for much of this year, and the cash transaction will reduce IGT earnings per share by 2 cents in both 2005 and 2006, the company said. But gaming analysts said IGT could regain investor confidence once new slot machine shipments begin in various American markets.

The transaction was announced before the stock market opened Wednesday. IGT shares closed at $27.98, up 69 cents, or 2.53 percent.

WagerWorks started as subsidiary of slot machine manufacturer Silicon Gaming, which IGT bought in 2001. WagerWorks' chairman is Andrew Pascal, who founded Silicon and is also the executive vice president and chief operating officer of Wynn Las Vegas.

With Internet gaming on the upswing, IGT's purchase may signal a move toward online wagering by some manufacturers. Interactive Gaming News, which follows the online casino industry, estimated there are more than 2,000 internet gaming sites.

"It's a signal, but it's not the definitive turning point," Interactive Gaming News Editor Mark Balestra said.

Gaming analysts said that buying WagerWorks poises IGT to prosper if the laws on American participation in online gaming change. Internet casinos are now prohibited from originating from the United States.

Susquehanna Financial Group gaming analyst Eric Hausler said the purchase won't jeopardize any IGT gaming licenses. Although the deal may reduce earnings slightly in the short term, he said the transaction has value.

"We see it more as a vertical play with longer-term accretive implications, although we see IGT more as a back-end supplier and content provider, than (as a company) interested in going into competition against its brick-and-mortar customers," Hausler said in a note to investors.

Legg Mason analyst Steven Wieczynski said IGT could have done something else with its free cash.

"The company has been hoarding its cash for some time, and a large transaction was expected, although this was not it, in our opinion," he said. "We still believe the company should be repurchasing its shares since investor sentiment is at an all-time low and business trends appear to be rebounding."