Private equity takeover talk sends shares of IGT upward

Slot machine giant International Game Technology on Friday became the latest target of private equity speculation within the gaming industry.

Bloomberg News and several gaming analysts said a run-up in the stock price of the Reno-based gaming equipment supplier was fueled by speculation that private equity giants Apollo Management and Texas Pacific Group were interested in adding IGT to their portfolio.

In December, Apollo and Texas Pacific agreed to pay $17.1 billion for casino giant Harrah's Entertainment, a deal that is expected to close by the end of the year.

A spokeswoman for Texas Pacific declined comment on the speculation. IGT spokesman Ed Rogich said the company's policy is not to comment on rumors surrounding its stock price.

On Friday, shares of IGT jumped as much as 9 percent in value on the New York Stock Exchange before closing the session at $40.62, up $2.74, or 7.23 percent. More than 17 million shares of IGT were traded, almost six times the average daily volume.

IGT has more than 332.4 million shares outstanding and a market capitalization of $13.5 billion.

Eric Green, a senior portfolio manager at Penn Capital Management in Cherry Hill, N.J., whose firm controls about 200,000 shares of IGT stock, said he heard the two private equity groups were looking at IGT. He also thought it was possible that IGT management could be looking for a way to take the company private.

Goldman Sachs gaming analyst Steven Kent told investors private equity would be attracted to a company like IGT because of its sizable cash flow of about $500 million annually.

"While it is difficult to comment, we believe there would be considerable benefits to an acquisition of International Game Technology," Kent said in a note to investors.

Kent said IGT provides access to a stable and growing recurring revenue stream from the company's participation business, where it shares in the winnings from its slot machines with casinos.

IGT controls about 60 percent of the gaming industry's overall slot market and the company reported a profit of $473.6 million on total revenues of $2.51 billion in its most recent fiscal year.

Wall Street analysts believe IGT is the slot maker in the best position to capitalize on an expected replacement cycle where server-based gaming machines begin supplanting older games, potentially in 2009.

The biggest hurdle facing any private equity group looking to buy IGT would be regulatory approvals.

Susquehanna Financial Group gaming analyst Robert LaFleur was unsure a deal was in the offing. He said securing government licenses in multiple states and countries could take more than a year.

"They only need licenses in eight or nine states for Harrah's," LaFleur said. "IGT has something like 300 licenses."

Deutsche Bank gaming analyst Bill Lerner gave little credence to the transaction taking place.

"It's an attractive company and it's an advantageous time, but there are a lot of pitfalls to this deal," Lerner said.

Bloomberg News contributed to this report.