Don’t Expect a Nevada Lottery Any Time Soon
Let’s halt one rumor before it gains traction.
Scientific Games Corp.’s $1.5 billion acquisition of slot machine manufacturer WMS Industries doesn’t mean a statewide lottery is headed to Nevada.
New York-based Scientific Games provides lottery systems and equipment to U.S. states, Canadian provinces and foreign governments. The company was actively seeking to acquire a traditional slot machine vendor when the buyout was announced in February.
It wasn’t about bringing a lottery to Nevada.
That said, Wall Street, which was skeptical about the deal, is starting to find some comfort with the transaction.
Scientific Games is paying $26 per share for WMS, roughly 59 percent above the slot maker’s closing stock price on Jan. 31.
When the buyout was announced, both WMS and Scientific Games officials said the transaction would provide $100 million of synergistic cost-savings between the merged companies.
Now, analysts say the prediction might be on the low side.
Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski recently hosted meetings between investors and Scientific Game executives, including Chief Financial Officer Jeff Lipkin.
Wieczynski later said Scientific Games, which is traded on the Nasdaq, could see its trading multiple expand as investors gain a better understanding of the company’s quarterly estimates.
“We continue to grow more comfortable with the pending WMS acquisition from both a fundamental and more importantly business stability perspective,” Wieczynski said.
The buyout is moving more smoothly than the gaming industry’s other high-profile merger. Pinnacle Entertainment’s $2.8 billion acquisition of Ameristar Casinos has run into federal antitrust issues in St. Louis and Lake Charles, La.
In March, the Federal Trade Commission signed off on Scientific Games’ buyout, saying there are no antitrust issues.
WMS is considered the third-largest slot machine manufacturer behind International Game Technology and Bally Technologies. Smaller companies, such as Konami Gaming, Aristocrat Technologies, and Multimedia Games, have slowly gained market-share, thanks partly to casino expansion in Ohio, Maryland, Pennsylvania and other markets.
WMS has branched into social- and interactive-gaming platforms, which could be used in Scientific Games’ lottery markets.
The FTC analysis for gaming equipment manufacturers is different than for casino companies. The geographic location for business for the sales and leasing of gaming devices is essentially the entire world. The competition also is magnified.
Nevada gaming regulators could evaluate the deal as early as September.
Scientific Games may not bring a lottery to Nevada, but it will provide the casino industry with another member of the Forbes 400 club.
New York takeover tycoon Ron Perelman, 70, owns 38 percent of Scientific Games and has been a director since 2003.
Perelman is ranked 26th on the Forbes list with a net worth of $12.2 billion, 14 spots behind Las Vegas Sands Corp. Chairman Sheldon Adelson but two ahead of New York hedge fund baron John Paulson, an investor in MGM Resorts International, Caesars Entertainment Corp. and Boyd Gaming Corp.
WMS’ slot machine and casino systems business is expected to be an operating subsidiary of Scientific Games once the deal is finalized.
“Scientific Games management has spent considerable time with the WMS management team over the past month,” Wieczynski said. “They believe the two companies are coming together and share similar views on how to run the combined businesses.”
The buyout might seem unusual because WMS is considered the larger company with a market capitalization of more than $1.4 billion. Scientific Games has a market capitalization of $973 million.
But there is a history in the gaming industry for this type of deal.
Harrah’s Entertainment was considered the smaller company when it acquired the much larger Caesars Entertainment for $9.4 billion in 2005.
On the manufacturing side, Anchor Gaming, a Las Vegas-based slot machine company and slot route operator, bought the much larger Powerhouse Technologies, a lottery and wagering systems business, for $280 million in 1999.
Lottery growth, for now, remains focused on the international front with Latin America, Panama, the Dominican Republic, parts of Europe and Greece all providing some expansion potential.
Earlier this month, Scientific Games said it signed a systems contract with the Hungarian State Lottery and an instant ticket and cooperative services contract with the South Carolina Education Lottery.
“We continue to grow incrementally more positive on the Scientific Games story,” Wieczynski said.
Howard Stutz’s Inside Gaming column appears in the Las Vegas Review-Journal on Sundays. Follow @howardstutz on Twitter.
