Lottery manufacturer Scientific Games Corp. will purchase slot machine giant Bally Technologies for $5.1 billion in deal announced Friday.
The transaction is the second high-profile gaming industry merger in less than a month. In July, Italian lottery company GTECH Holdings said it was buying slot machine maker International Game Technology for $6.4 billion.
New York-based Scientific Games will acquire all of the outstanding shares of Las Vegas-based Bally for $83.30 per share — valued at $3.3 billion — and assume the company’s debt of approximately $1.8 billion.
The deal also strengthens Scientific Games’ push into the slot machine side of the business. Last year, Scientific Games bought slot machine maker WMS Industries for $1.5 billion.
“In our view, this deal could mark the culmination of substantially all the mega-deals in the space,” Credit Suisse gaming analyst Joel Simkins told investors. “While there are still a handful of relevant domestic-international players, they may have to start thinking about future options.”
In a statement, Scientific Games said the transaction would result in $220 million in annual cost savings and $25 million of annual capital expenditure savings by the end of the second year.
The transaction returns former Bally executive Gavin Isaacs to his former home. Isaacs served as chief operating officer of Bally before becoming CEO of SHFL entertainment. Last year, Bally bought SHFL for $1.3 billion. Isaacs became CEO of Scientific Games earlier this year.
‘MARRIAGE MADE IN HEAVEN’
On a conference call Friday to discuss the deal, Isaacs said the agreement came together in three-and-a-half weeks after Scientific Games approached Bally.
Isaacs called the transaction “a marriage made in heaven, and obviously for me, a dream come true.”
He said the idea behind the merger was to create “one-stop shopping” for both of the company’s slot machine game and lottery titles.
“Having worked side-by-side with the talented teams at Bally and more recently Scientific Games, I am confident this combination brings together best-of-breed cultures,” Isaacs said.
The transaction, which requires gaming regulatory and shareholder approval, is expected to close next year. The deal will also be subject to approval by federal anti-trust regulators.
Isaacs didn’t believe there would be anti-competitive issues that would concern the Federal Trade Commission. The combined company will still be smaller than IGT, he said.
Buckingham Research gaming analyst Brian McGill estimated that the Scientific Games-Bally merger would result in a combined marketshare of 35 percent, on par with IGT.
“The industry is very competitive and this transaction does not change the landscape dramatically,” McGill said.
Isaacs will continue as CEO of Scientific Games. It is expected that Bally CEO Richard Haddrill and Bally Chairman David Robbins will join the Scientific Games’ board of directors.
“Increased scale, geographic diversity and product development capabilities will create a new runway of growth opportunities through new products and a comprehensive portfolio of customer-focused solutions,” Haddrill said.
Scientific Games’ largest shareholder is financier Ronald Perelman, who is ranked 27th on the Forbes 400 list of billionaires with a net worth of $14 billion. Perelman owns 38 percent of the company.
Perelman, who also owns a large stake in cosmetics giant Revlon, said his investment fund had looked at acquiring “a destination resort” a few years ago, but decided it was more a real estate investment. He explored other ways to enter the casino industry.
Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said the transaction creates a company that can compete with the new GTECH-IGT combination in both the lottery world and the slot machine side of the industry.
“It’s pretty clear that deal (GTECH-IGT) was a game changer for the industry,” Wieczynski said. “We have to say we are a bit surprised at how fast this deal came together. While there has been a tremendous amount of consolidation in the gaming equipment space recently, we didn’t see this combination coming together so quickly.”
On the conference call, Isaacs said the gaming industry was getting broader and the transaction doesn’t lesson competition. Some casinos utilize up to 30 different suppliers.
“There are more companies making major inroads into the industry,” Isaacs said.
Because both Scientific Games and Bally have gone through significant mergers in the past year, the integration process “should be seamless,” Isaacs said.
Union Gaming Group analyst Robert Shore said Isaacs was the right person to lead the integration given his prior prior leadership roles with both Bally and SHFL.
“The new combined company creates another massive global lottery and equipment company with a large presence across multiple equipment segments,” Shore said.