Gaming Industry Giant IGT Bought By GTECH Corporation

IGT Bought By GTECH Corporation

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Gaming industry’s largest slot machine manufacturer; IGT (International Game Technology) has been sold for $6.4 billion to lottery giant GTECH Corporation in a merger that will create the world’s largest gaming equipment provider.

In the late 1990s and early 2000s, IGT bought several rival slot machine and gaming technology companies, strengthening its position as the global slot machine giant.

IGT announced last month that it was exploring “strategic alternatives” while Wall Street began speculating the company was for sale.

When IGT Bought By GTECH Corporation who is headquartered in Italy, GTECH will pay $4.7 billion in cash and stock and assume $1.7 billion of IGT’s debt.

IGT and GTECH will combine under a newly formed holding company organized in the United Kingdom, and the name IGT is expected to be done away with, under the terms of the agreement.

Operating under the name of GTECH, the company will be headquartered in the United Kingdom and maintain operating headquarters in Las Vegas, Providence, R.I., and Rome.

The new company is expected to apply for listing solely on the New York Stock Exchange. When the transaction closes, IGT’s shares will cease trading on the New York market and GTECH’s shares will cease trading on the Borsa Italiana market when IGT Bought By GTECH Corporation.

IGT CEO Patti Hart said in a statement

“This outstanding combination of two global leaders redefines the future of the gaming industry. Together we are uniquely positioned to provide the industry’s broadest and most innovative portfolio of best-in-class products, solutions and services.”

The merger is expected to achieve over $280 million in annual cost savings, and will combine IGT’s market-leading slot machine products, game library, manufacturing division and operating capabilities with GTECH’s gaming operations, lottery technology and services.

IGT’s stock price is 61 percent below what was 10 years ago. The company’s revenue declined 27 percent from 2007 to 2009. During the quarter ended March 31, IGT profits fell 66 percent; the company lowered its financial expectations for the year and it reduced its worldwide workforce by 7 percent.

As of March 31st, 2014, based on the past year, the combined IGT-GTECH entity will have more than $6 billion in revenues and more than $2 billion in cash flow.

“This transaction is transformational for our business”

GTECH CEO Marco Sala said in a statement, and continues saying

“With limited overlap in products and customers, the combined company will enjoy leading positions across all segments of the gaming landscape.”

Sala will serve as CEO of the new company. IGT Chairman Phil Satre will serve as the new company’s chairman and Hart will become vice chairman.

According to terms of the transaction, IGT shareholders will receive $18.25 per share, which includes cash and shares in the new company. GTECH shareholders will exchange each of their existing GTECH shares for one share in the new company.

For many in the gaming industry this merger of IGT Bought By GTECH Corporation comes as no surprise, as this deal between the two industry giants almost happened 14 years ago, with different corporate players and under different circumstances where IGT almost bought GTECH.

One gaming industry leader with knowledge of the two companies’ history states

“This is a dance that has been going on for 20 years”

Former IGT Chairman Charles Mathewson confirmed in an interview

“The companies were ‘less than one-quarter of a point’ from reaching agreement in 2000, with IGT buying GTECH.”

Mathewson, 85, said from his office in Reno

“It was great overlap between two great companies from two industries, GTECH was having some problems in London and Brazil, but we just couldn’t get things finalized.”

Five years later, Mathewson, then-IGT CEO T.J. Mathews and other executives boarded the corporate jet and flew to GTECH’s headquarters in Rhode Island. Again, the intent was to buy the lottery operator, and once again the transaction could not be finalized.

A year later, GTECH was purchased by Lottomatica Group; an Italy based company, and moved the corporate offices to Rome; assuming the GTECH name. Under new ownership and increased visibility through new domestic and international lottery contracts new life breathed health back into the failing company.

In fiscal 2013, GTECH reported more than $4 billion in revenue.

Meanwhile, IGT entered a long tailspin.

Mathewson was part of a group led by analyst-turned-investor Jason Ader in 2013’s proxy fight over seats on IGT’s board. Ader’s group won just one of the three seats it sought.

Mathewson still owns IGT shares, but “not a significant” amount.

Mathewson said,

“Considering what happened with IGT, it’s [the merger] a good deal for the shareholders.”

A 1998 purchase of British slot maker Barcrest for $70 million moved the company into Europe. The 1999 acquisition of game developer Sodak Gaming of South Dakota for $230 million opened the door for IGT in Indian casinos.

In 2005, IGT bought European online gaming developer WagerWorks for $90 million, which gave the company the foothold in interactive gaming.

The largest deal happened in 2001, when IGT bought Las Vegas-based Anchor Gaming for $1.37 billion. The deal gave the company full control of several slot machine titles, including “Wheel of Fortune.” (Full disclosure: I was Anchor Gaming’s head of corporate communications when the deal took place.)

IGT’s two most recent acquisitions had different outcomes.

Matthew’s replacement, CEO Patti Hart engineered the $500 million buyout of social gaming giant Doubledown Casino in 2012. The deal was criticized by investors, especially concerning the amount IGT paid for the free-to-play website with the largest presence on Facebook.

Hart was vindicated as IGT’s largest quarterly revenue increases have come from its interactive division, led by Doubledown.

IGT’s 2011 purchase of Sweden-based online poker operator Entraction for $115 million blew up a year later. Several European countries changed regulations and IGT pulled the plug on its online poker operations.

Macquarie Securities gaming analyst Chad Beynon states,

“Given the convergence of gaming and the different channels of content — casinos, social gaming, Internet gaming, lottery, etc. — we expect further gaming consolidation.”

With GTECH providing the operating systems and management for some of largest U.S. state lotteries — California, Texas, New York, Florida, Illinois, Georgia — expect to see IGT’s popular slot machine titles in lottery games.

However, analysts noted slot machine makers Multimedia Games of Austin, Texas, and Australia-based Ainsworth Game Technology could be on some company’s shopping list. Stay Tuned…for more information on IGT Bought By GTECH Corporation.

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