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Bally Technologies to acquire SHFL entertainment for $1.3 billion

17 Jul 2013

By Howard Stutz
All of a sudden, it’s mergermania in the gaming industry.

A third major transaction in eight months was announced Tuesday when slot machine manufacturer Bally Technologies, Inc. said it will acquire gaming equipment provider SHFL Entertainment for $1.3 billion.

Bally, one of the gaming industry’s largest slot machine developers, will pay SHFL stockholders $23.25 per share, a 24 percent premium over the company’s Monday closing price.

The transaction requires approval from SHFL shareholders, gaming regulatory bodies in Nevada and other states, and the Federal Trade Commission. The deal is expected to close by June 2014.

Shares of both companies reacted positively Tuesday to the announcement. Bally shares gained $4.22, or 6.93 percent, on the New York Stock Exchange to close at $65.13. SHFL shares rose $4.11, or 21.98 percent, to close at $22.81 on the Nasdaq.

Wall Street quickly praised the transaction, which gives Bally additional products, such as SHFL’s line of table game management systems, proprietary tables games, electronic table games, as well as additional reach into Asia and Australia.

“While Bally is paying a relatively expensive multiple for SHFL, we see a number of corporate operating synergies,” Credit Suisse gaming analyst Joel Simkins told investors. “In addition, we believe SHFL gives Bally a leading table games platform, improved interactive gaming capabilities, as well as international diversification.”

Bally said the deal will lead to annual operation cost savings of $30 million.

The Bally-SHFL merger is the second announced transaction involving gaming equipment suppliers.

In December, regional casino operator Pinnacle Entertainment said it was buying rival Ameristar Casinos for $2.8 billion.

In January, lottery giant Scientific Games said it would buy slot machine maker WMS Industries for $1.5 billion.

Analysts said the gaming equipment sector has long been “ripe for consolidation,” but the economy and reduced credit markets kept many transactions at bay.

Deutsche Bank gaming analyst Carlo Santarelli said the Scientific Games-WMS deal might have been the catalyst for Bally and SHFL.

“While the dynamics of each transaction are unique, we find it impossible to ignore the fact that both strategic and private equity bidders have been involved in the bidding processes for companies that ultimately agreed on deal terms at earnings valuation multiples north of 25 times cash flow,” Santarelli said in a research report.

“We believe the deal makes sense for Bally,” he said.

SHFL, formerly known as Shuffle Master, manufactures table game management equipment, such as automated card shufflers, and distributes nontraditional casino games, such as Three Card Poker, Ultimate Texas Hold’em and Caribbean Stud. The company also manufactures electronic table games.

Bally Technologies Chief Executive Officer Ramesh Srinivasan said acquiring SHFL broadens the company’s reach on the casino floor beyond the current offerings of slot machines and gaming systems.

SHFL has a virtual monopoly in the game shufflers market and the acquisition gives Bally an additional advantage in selling casino equipment.

“This combination will enable Bally to provide customers with the most diversified suite of world-class gaming products, and industry-leading branded content for the entire casino floor,” Srinivasan said during a conference call with analysts.

In an interview, he said the merger between Bally and SHFL’s interactive division offers the company a stronger presence in the growing Internet gaming market.

“The acquisition of SHFL represents a great leap forward for Bally, creating a world-class end-to-end gaming technology innovator,” Srinivasan said.

Sterne Agee gaming analyst David Bain said other slot machine companies could regret that they are not acquiring SHFL.

“Many investors and industry insiders have often opined that SHFL would make one of the best acquisitions for a large domestic slot supplier given its unique core competencies, adding diversity outside of slot sales and domestic markets,” Bain said.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said the transaction removes a solid competitor from the slot machine sector. SHFL has been moving sales of its Australian-based Stargames products to North America.

“It took longer than we expected, but we always believed SHFL was the perfect company to be acquired by one of the core gaming manufacturers,” Wieczynski said.

SHFL CEO Gavin Isaacs said the transaction was a good deal for the company’s stockholders, who will receive a price per share that is 40 percent above the company’s average closing price over the last three months.

“From a strategic standpoint, we are bringing together two best-in-class highly complementary and customer-centric companies, with a shared emphasis on innovation,” Isaacs said.

Bally employs 975 workers in Las Vegas; SHFL has 350 employees at its Las Vegas headquarters.

As part of the deal, Bally will assume from SHFL $8 million of debt and $41 million of cash on hand.

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