GTech to acquire IGT in $6.4bn deal

By Emma Rumney
Italy’s GTech S.p.A has entered into a definitive merger agreement with Vegas-based International Game Technology (IGT) in a $6.4bn deal that will see the amalgamation of the world’s largest lottery provider and biggest slot machine developer.

After rumours first surfaced last month the companies confirmed in a statement on Wednesday that GTech will purchase IGT for $4.7bn in cash and stock and the assumption of $1.7bn in net debt, with IGT shareholders receiving an aggregate value of $18.25 per share as $13.69 in cash plus 0.1819 shares in the newly-formed holding company – NewCo. GTech shareholders will exchange each of their existing GTech shares for one newly issued NewCo share.

The new, gargantuan end-to-end gaming company, which will boast a combined $6bn in revenue and $2bn in EBITDA, brings together IGT’s game library and manufacturing and operating capabilities with GTech’s gaming operations, lottery technology and services.

The firms said the merger will “drive competitive scale across multiple businesses, geographies and product lines and is expected to achieve over $280m in synergies”.

Marco Sala, GTech CEO, said: “This transaction is transformational for our business. With limited overlap in products and customers, the combined company will enjoy leading positions across all segments of the gaming landscape.”

He continued to say that this broad offering and strong customer relations across a spectrum of clients will also mean the new company is “uniquely positioned to take advantage of the ongoing convergence across global gaming segments”.

Sala said that GTech’s expertise and a greater ability to invest in research and development will improve player experiences and benefit the firm’s government and business clients, while the transaction will enhance the firm’s cash flow and financial strength, providing clear and achievable revenue synergies.

The combined entity will be comprised of end-to-end lottery solutions, including operation and management capabilities; i-gaming solutions; video lottery terminals; gaming content across mobile, retail and gaming machines; manufacturing and operation of gaming machines and central systems for casinos; and social gaming.

Its interactive solutions will comprise of IGT’s social gaming business DoubleDown Interactive and its real-money gaming content supply business with GTech’s gaming platform (including poker, bingo, casino and sports betting) as well as its operating brands in Italy under Lottomattica.it and Totosi.it. GTech also provides interactive and mobile solutions to a global client base.

The new company will be listed solely on the New York Stock Exchange (NYSE), with operating headquarters in Las Vegas, Providence and Rome and corporate headquarters in the UK – where it will also establish tax residency, potentially lowering the tax bill for Rome-based GTech which currently has to put up with some of the highest corporate taxes in the developed world.

IGT’s shares will cease trading on the NYSE and GTech’s shares will cease trading on the Borsa Italiana. It’s expected that NewCo will continue under the name GTech plc.

De Agostini S.p.A and its subsidiary DeA Partecipazioni S.p.A, holding in the aggregate approximately 59% of GTech’s outstanding shares, have entered into a support agreement with IGT pursuant to which they have agreed to vote in favour of the transaction.

As a result of the transaction it is anticipated that existing IGT and GTech shareholders will own approximately 20% and 80% respectively of NewCo ordinary shares and De Agostini is expected to hold approximately 47% of NewCo’s outstanding ordinary shares.

GTech expects to finance the cash portion of the deal through a combination of cash on hand and new financing. In connection with entering into the transaction, GTech has received binding commitments totalling $10.7bn from Credit Suisse, Barclays and Citigroup to finance the purchase, including refinancing certain existing indebtedness.

Patti Hart, IGT CEO, said the company was “extremely pleased” to reach an agreement with GTech after exploring strategic alternatives to increase shareholder value.

Hart said: “The 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.

“This strategic agreement positions us to further transform the industry while providing meaningful benefit and value to our customers, our employees and our shareholders.”

The transaction has already been unanimously approved by the board of directors of both companies and represents a 46% premium to the closing price of IGT’s common stock on 6 June, the last trading day prior to initial reports that IGT was exploring a potential sale.

It is now subject to the receipt of antitrust and gaming clearances, approval by IGT and GTech shareholders and other customary conditions. The transaction is expected to be completed in the first or second quarter of 2015.

Upon the closing of the transaction, the initial board of NewCo will be comprised of 13 directors including Sala, who will serve as CEO of NewCo, five directors to be appointed by IGT from its existing board, including chairman Phil Satre, who will serve as chairman of NewCo, and Hart, who will serve as vice-chairman. Another six directors will be appointed by GTech, at least four of whom will be independent and one of whom will serve as a vice-chairman. A final, independent director will be agreed by GTech and IGT.

Several similar consolidations have been undertaken recently by traditional gambling equipment makers as the i-gaming industry rapidly expands. Previously this month, slot-machine maker Aristocrat Leisure purchased slot and bingo machine manufacturer Video Gaming Technologies for $1.28bn.

Last year Bally Technologies extended its slot-machine offering by acquiring SHFL Entertainment and earlier on in 2013 Scientific Games took over machine maker WMS Industries.

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