A strategic industry buyer could offer a higher bid for gaming supplier International Game Technology (IGT) and face fewer potential regulatory hurdles than a private buyer, U.S.-based Telsey Advisory Group says in a report.
On Friday, Reuters reported that lottery operator GTech SpA and investment firm MacAndrews and Forbes Holdings Inc were competing to buy IGT. Private equity firm Apollo Global Management LLC, co-owner of casino operator Caesars Entertainment Corp, and buyout firm Carlyle Group LP are also pursuing a bid, Reuters said citing sources.
The parties made preliminary takeover offers for IGT and are preparing to submit binding bids in the next few weeks, the news agency said. None of the companies have confirmed their interest in IGT.
Last week, IGT shares surged on a report the company is considering putting itself up for sale. The company was said to have hired investment bank Morgan Stanley to explore a possible sale.
Analysts say IGT’s reported search for a buyer is prudent and it shows the company’s board is looking to consider alternative paths giving the competitive dynamics in the marketplace.
While reports suggest that IGT would be more interested in a private buyer, Telsey said a strategic buyer would make more sense in “anticipation of expected synergies”.
“We estimate a prospective suitor could pay around US$17/share for IGT in an LBO [leveraged buyout] and still generate a levered IRR [internal rate of return] of 25 percent, valuing the company at US$6 billion,” the brokerage said.
“This assumes low- to mid-single-digit EBITDA [earnings before interest, taxation, depreciation and amortisation] growth over the next five years, 70 percent debt financing, and an exit multiple of 7.75x, equal to the implied purchase price multiple based on US$17/share,” it added.
IGT shares jumped 10.5 percent on Friday to US$15.86 at the close in New York, giving the company a market value of close to US$4 billion. The company had US$2.2 billion of debt at the end of March.
“By our estimates, GTech could buy IGT at US$17/share entirely with debt at 4.3x pro forma leverage, suggesting even greater capacity to outbid a private suitor,” Telsey said.
GTech would expect strong synergies from a potential combination with IGT, and may also team up with a private equity firm to help with the purchase, Reuters said citing people familiar with the matter.
IGT meanwhile announced on Friday a cash dividend of US$0.11 per share, to be paid on July 11. IGT posted a profit of US$25.7 million for the fiscal quarter ending March 31, a 67 percent drop from a year earlier.
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Professor emeritus at Whittier Law School in California, in the United States, and a visiting professor at University of Macau