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IGT Agrees to Takeover by Gtech

Stocks in this article: IGT SGMS CZR CS BCS C

NEW YORK (The Deal) -- Italy's Gtech has agreed to pay $6.4 billion for Las Vegas's International Game Technology (IGT), striking a takeover that will combine the world's largest lotteries operator with the No. 1 maker of slot machines.

Gtech said on Wednesday, July 16, it will offer $13.69 in cash and 0.1819 of a share, equivalent to $18.25, for each IGT share. That's about 18% higher than IGT's Tuesday closing price of $15.50. The bid values the Nevada-based target's equity at $4.7 billion and will include about $1.7 billion of assumed debt.

The offer is the second $1 billion-plus, cross-border deal in the gaming sector this month following Australia's Aristocrat Leisure's July 7 agreement to pay $1.28 billion for Video Gaming Technogies Inc. Gaming companies are under pressure to increase scale to cope with increasing competition and an enduring decline in revenue triggered by last decade's financial crisis.

Spending by U.S. gamblers is likely to fall by between 3% and 5% over the next 12 to 18 months "causing overall industry Ebit to decline between 4.5% and 7.5%," Moody's Investors' Service's Keith Foley noted at the end of June.

The combination of Gtech and IGT will create a player with "superior financial strength, with over $6 billion in revenues and more than $2 billion in Ebitda," Gtech CEO Marco Sala told analysts on a call on Wednesday. The deal is expected to result in about $280 million of cost savings and other synergies and will be immediately accretive to earnings.

Gtech's bid values IGT at an enterprise value equal to about 8.7 times Ebitda, falling to about 6.3 times Ebitda including expected cost savings arising from the combination of the two companies. That is broadly in line with the 8.2 times Ebitda that Aristocrat agreed to pay for VGT.

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