What acquiring company GTech SpA describes as the “turnaround” of Nevada-based slot machine maker International Game Technology (IGT) would take time, analysts were told at a meeting with management on Wednesday.
But senior leadership of the GTech-IGT entity – which will be known as IGT after the expected finalisation on April 7 of the US$6.4-billion merger – said in an accompanying investor presentation that GTech already had a successful track record on turnarounds.
The presentation by GTech chief executive Marco Sala said that after the company acquired Spielo Manufacturing Inc in 2004, it had achieved “turnaround of the Spielo gaming machine business”.
“GTech acknowledged IGT’s recent domestic share loss,” said a note from Cameron McKnight, Rich Cummings and Tiffany Lee of Wells Fargo Securities LLC commenting on the meeting and the presentation.
The note added, referring to the United States gaming machine market: “GTech expects a flat domestic replacement market in the near-term and will focus on driving innovation. It expects results of a turnaround to appear in calendar year 2016 as the development cycle progresses.”
In the presentation, GTech reaffirmed its target for US$280 million in “synergies” – a euphemism for cost cuts and revenue improvements – from the IGT acquisition. It consists of US$230 million in cost reductions and US$50 million in revenue improvements.
“These revenue synergies include: 1) selling IGT equipment into the Italian VLT market, 2) leveraging brand opportunities (i.e. Wheel of Fortune instant tickets), 3) introducing Spielo content into DoubleDown, and 4) introducing DoubleDown internationally,” said Wells Fargo, referring latterly to IGT’s social online casino brand DoubleDown Casino.
“IGT’s DoubleDown is a strong strategic asset, in our view,” said Wells Fargo. “While there were many initial investor concerns over IGT’s DoubleDown acquisition in 2012, the deal proved to be very successful.”
Revenues from DoubleDown – which IGT acquired for US$500 million in early 2012 – doubled in financial year 2013 and grew 30 percent in financial year 2014. Earnings before interest, taxation, depreciation and amortisation (EBITDA) grew from around US$25 million at acquisition to around US$100 million today, said Wells Fargo.
“GTech believes that DoubleDown has long-term strategic potential, as it keeps IGT/Spielo content top-of mind with customers even when they are off-premises, and is a useful test bed for new content, amongst other benefits,” added Mr McKnight and his colleagues.
GTech on March 9 reported a 52.5 percent decline in net income in full year 2014, mainly on costs associated with the IGT deal.
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"If the [Macau casino] concessions are put up for bid, there will also be a lot of giant Chinese companies, some having nothing to do with gaming, which would like to take over these enormously successful casinos”
Professor emeritus at Whittier Law School in California, in the United States, and a visiting professor at University of Macau