Early this morning, International Game Technology announced it had been acquired by Gtech, an Italian company specializing in lotteries. The terms of the deal include the assumption of $1.7 billion in debt and 
the payment of $4.7 billion in cash. Gtech stockholders will get one share of the merged entity for every Gtech share they own. IGT shareholders, by contrast, will receive $13.69 per share plus 0.2 shares in holding company NewCo. Although registered in the United Kingdom, NewCo will maintain satellite headquarters in Rome and Las Vegas, and maintain its Gtech name. “With limited overlap in products and customers, the combined company will enjoy leading positions across all segments of the gaming landscape,” announced Gtech CEO Marco Sala.
The sale price is an 18% premium to last night’s close but a 46% markup from where IGT was trading when it announced it was looking for a buyer, last June 6. J.P. Morgan analyst Joseph Greff doesn’t see a bidding war on the horizon “given the current price/premium, soft industry/company dynamics, and limited synergies ($280m+ targeted by GTECH) a financial buyer (versus a strategic one) could achieve.” The move to the U.K. also promises tax relief, since Italy is “a country that has some of the highest corporate taxes in the developed world.”
IGT shareholders can take their payday all in stock or cash or a mixture of the two, according to Greff. In terms of revenue and workforce, Gtech dwarfs IGT, doing almost double the business ($4 billion-plus) and with a workforce of 8,600 to IGT’s 5,000. The merged companies will each appoint 12 members to the board of directors (five from IGT), which will be chaired by IGT’s Phil Satre, while IGT CEO Patti Hart (right) will be a vice chairman.
While the new arrangement removes some of the pressure on IGT to perform domestically, it also increases Gtech’s presence in a U.S. market where gambling spend rose almost 7% last year. By contrast, Gtech is overexposed in a recession-plagued Italian economy. The stock will be de-listed in Milan and posted on the New York Stock Exchange instead. With Credit Suisse, Barclays and Citigroup having committed $10.7 billion in financing, it should be a cinch for Gtech to close the deal.
The distraction created by the merger gives Bally Technologies and Scientific Games a chance to steal a march on IGT. Or, as Union Gaming Group analyst Robert Shore wrote, “The integration process should be long and challenging and should be an opportunity for competitors to pick up [market] share in the next 18 months or so.”
Once the dominant player in the American market, IGT now only has a market share of 41%. Could one see it being taken over in this fashion in the days when it was riding high and was the clearly dominant slot supplier to the world? Probably not. Still, compared to the purchase prices of SHFL Entertainment ($1.3 billion) and WMS Industries ($1.5 billion), IGT commanded a handsome price in order to succumb to Gtech’s advances.
