Scientific Games Corp says it will expand its existing digital gaming and online gambling portfolio by buying Canada-listed sports wagering specialist NYX Gaming Group Ltd for approximately CAD775 million (US$628 million), including debt.
In other developments, Scientific Games, a provider of games and management technology to the casino and lottery industries, outlined the rationale for its planned change of incorporation from the U.S. state of Delaware to Nevada. The group cited one reason as the Nevada court system’s intention to be “stable, predictable and more efficient”.
In its Wednesday press release regarding the NYX Gaming acquisition, Scientific Games described the target as “one of the fastest growing B2B [business-to-business] real-money digital gaming and sports betting platforms in the world”.
The suitor’s president and chief executive Kevin Sheehan said in a prepared statement in the release: “This strategic and financially compelling acquisition combines NYX Gaming’s premier digital gaming and sports betting platforms and expansive distribution network to our own global, industry-leading content, technologies and digital products and services.”
David Katz, an investment analyst at brokerage Telsey Advisory Group LLC, said in a Wednesday note that the deal “positions the company for the prospective proliferation of legal sports betting and online gaming in the U.S. over time”.
A note from JP Morgan Securities stated: “We view this as a strategically attractive, logical transaction and complementary to Scientific Games’ existing businesses, with potential to favourably position the company in the event of positive sports betting or real-money gaming legislation.”
Scientific Games will acquire all of the outstanding ordinary shares of NYX Gaming for CAD2.40 per share, equivalent to an enterprise value of approximately CAD775 million, said the release. The deal is due to close in the first quarter of 2018, subject to the satisfaction of certain conditions, including NYX Gaming shareholder approval.
Telsey Advisory said the acquisition cost represented 10.2x the market consensus estimates for the target company’s trailing-12-month earnings before interest, taxation, depreciation and amortisation (EBITDA).
“We note that published consensus estimates suggest that NYX’s EBITDA is expected to grow approximately 66 percent in 2017, which combines with Scientific Games’ interactive EBITDA, which is expected to grow 41 percent according to our estimates,” wrote Mr Katz.
Scientific Games said that on completion of the transaction, Matt Davey, currently NYX Gaming’s chief executive, would oversee a newly created digital gaming and sports division at Scientific Games.
Scientific Games is a significantly indebted business, following several leveraged transactions to take over other firms. At the end of June, Scientific Games had total outstanding debt of US$8.18 billion, according to its second-quarter results, issued in late July.
In a Monday filing to Nasaq outlining Scientific Games’ decision to shift its legal domicile to Nevada, the firm stated: “The reincorporation in Nevada may help us attract and retain qualified management by reducing the risk of lawsuits being filed against the company and its directors and officers.”
The group added: “We believe that the advantage of Nevada is that, unlike Delaware corporate law, much of which consists of judicial decisions that migrate and develop over time, Nevada has pursued a statute-focused approach that does not depend upon constant judicial supplementation and revision, and is intended to be stable, predictable and more efficient.”
The group added that moving from Delaware would free it of obligation to pay annual Delaware franchise tax “which we expect will result in substantial savings to us over the long term”. Scientific Games said that for tax year 2016, it paid US$180,000 in Delaware franchise taxes.
“If we reincorporate in the state of Nevada, our current annual fees will consist of an annual business license fee of US$500 and an annual filing fee of US$300,” it added. The filing made no mention of the relative merits of the two states regarding any other taxes or fees.
But the group noted with regard to U.S. federal tax liability under the proposed change: “We intend the reincorporation merger to be a tax-free reorganisation under the Internal Revenue Code of 1986, as amended. Assuming the reincorporation merger qualifies as a tax-free reorganisation, the holders of our common stock will not recognise any gain or loss under the U.S. federal income tax laws as a result.”
The proposed move is still to be approved by Scientific Games’ shareholders.
(Updated 5.25pm, Sept 21)
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