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IGT, Anchor Merger Subject to Renegotiation

LAS VEGAS, Nevada –- International Game Technology and Anchor Gaming may have to go back to the negotiating table, following a huge plunge in IGT's stock price last week.

Reno-based IGT plans to acquire Las Vegas-based Anchor Gaming in a one-for-one stock swap, plus the assumption of $430 million in debt. However, the deal can be renegotiated -- or scrapped altogether -- if IGT's stock price falls below $50 per share.

Massive selling activity has placed IGT well below that mark. Investors shaved 24 percent off IGT's market value last week, putting it at $39.05 per share when markets closed Friday. IGT gained 85 cents to close at $39.90 Monday, but still remained well below the collar price.

The transaction was valued at $1.365 billion when announced July 9, based on IGT's closing stock price of $59.20 at the time. At Monday's price, the deal's current value had fallen to $1.06 billion.

The $50-per-share mark does not become an issue until 20 business days before Anchor shareholders meet to vote on the merger. If IGT's average share price is below $50 during that period, Anchor has the option of walking away from the deal, "subject to IGT's right to provide a higher exchange rate such that the value of the IGT stock received by Anchor Gaming shareholders equals $50 per share."

At current trading levels, that would require IGT to increase the amount of stock paid to Anchor shareholders by 20 percent.

"At this point, the thing to look at is that there's a Jan. 31, 2002 deadline for them to close the deal ... that's a significant amount of time," said Adam Steinberg, gaming analyst with CIBC World Markets. "Everyone's going to take a wait-and-see approach and see if the prices can rebound. As they start to approach that 20-day collar ... maybe they'll start getting into more frank discussion about what happens to the collar."

Both IGT and Anchor say their deal makes as much business sense as it did in July. But Anchor says it may ask IGT to sweeten the deal if share prices remain depressed.

"We put the (price) collar in place to make sure Anchor Gaming stockholders received at least minimum value for their stock in a one-for-one transaction," said Howard Stutz, Anchor spokesman. "In light of what happened, and what we've seen in that market, we may have to revisit what that minimum value might be at this time."

As to whether Anchor would pull out, "that's speculation, and I can't speculate on that," Stutz said. "This is something we believe is a very good deal. The fundamental reasons for this merger haven't changed. What's changed is what's happened with the stock market."

IGT is not yet saying whether it would be willing to go along with a renegotiation in Anchor's favor, as the price collar is not yet an issue. It is expected the Anchor shareholder meeting will be held sometime in November or December.

"The clear intent of both companies is to have this deal come together," said Ed Rogich, IGT vice president of marketing. "Obviously, the pricing that is used to close the deal will have to be fair, based on the value of the companies and the stocks involved at that time."

If IGT ends up below the collar, "that entity (Anchor) has the ability to relook at the deal," Rogich said. "Everything is open to consideration at that point. But the other party has to agree to it. Both parties will try to seek a middle ground to make this deal happen. Both are working toward the same goal to begin with."

The intent of a collar, however, is to keep the terms of the deal on a fairly stable basis. And, Rogich noted, "both stocks are being affected equally" by the sell-off.

Anchor has traded in lockstep with IGT since the buyout was first announced July 9. It closed Monday at $38.83.

Anchor would be taking a big risk by trying to renegotiate the deal if the collar is breached, one analyst believes.

"That sword cuts both ways," said Dave Ehlers, chairman of Las Vegas Investment Advisors. "If Anchor thinks they're entitled to 1.2 shares (of IGT stock), IGT might think they're entitled to 0.75 shares. In my opinion, the collar being breached gives both sides the opportunity to revisit the transaction with their own self-interest in mind."

Debt may also end up playing a role, Ehlers believes. IGT reported $1.55 billion in liabilities as of June 30; buying Anchor will increase IGT's debt load by nearly $430 million.

"The thing I could see them (IGT) saying is, 'Given the fact that business has taken such a dour note, we are no longer willing to assume that much indebtedness, so forget it,' " Ehlers said. "We don't know what they're going to decide. But if I were an Anchor shareholder, I would sure hope I would get IGT stock, and that they'd assume that debt."

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