NEW YORK (TheStreet) -- International Game Technology (IGT) shares are up 9.5% to $16.97 in pre-market trading on Wednesday after entering into a definitive merger agreement with Italian gaming company GTech (GTKYY) for $4.7 billion in cash and stock.
Under the agreement the newly formed company will be organized in the U.K. with IGT shareholders receiving $13.69 in cash, plus 0.1819 shares in the new company for each share of IGT common stock, equal to an aggregate value of $18.25 per IGT share.
The aggregate value of the deal including IGT debt is $6.4 billion.
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TheStreet Ratings team rates INTL GAME TECHNOLOGY as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate INTL GAME TECHNOLOGY (IGT) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The gross profit margin for INTL GAME TECHNOLOGY is rather high; currently it is at 63.26%. Regardless of IGT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 5.03% trails the industry average.
- INTL GAME TECHNOLOGY has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, INTL GAME TECHNOLOGY increased its bottom line by earning $1.02 versus $0.87 in the prior year. This year, the market expects earnings to be in line with last year ($1.02 versus $1.02).
- Currently the debt-to-equity ratio of 1.98 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. To add to this, IGT has a quick ratio of 0.69, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 67.0% when compared to the same quarter one year ago, falling from $78.20 million to $25.80 million.
- You can view the full analysis from the report here: IGT Ratings Report