Scientific Games Sells Racing Unit - TheStreet

NEW YORK (

TheStreet

) --

Scientific Games

(SGMS) - Get Report

is selling off its racing and venue management business to

Sportech

for up to $83 million in stock and cash.

Sportech, a British gaming company, said on Wednesday that it would pay an initial $65 million, followed by $10 million on Sept. 30, 2013, and a potential $8 million deferred-cash payment based on the unit's performance over the next three years.

Scientific Games announced last February that it would explore strategic alternatives for the business. Scientific Games provides technology systems like video lottery terminals and monitor games, as well as services like marketing support, to worldwide gaming markets.

The initial payments include $32.9 million in cash and $39.74 million in Sportech shares, which would give Scientific Games a 19.99% stake in the group.

"We believe this transaction, despite the seemingly low multiple and limited upfront cash payment, will be well received by investors given the accretive impact divesting the business will have on margins, EPS and free cash flow," J.P. Morgan analyst Carlo Santarelli wrote in a note.

The removal of the racing business could also allow for margin expansion close to 10 percentage points, he wrote.

Scientific Gaming will incur a non-cash pre-tax charge of $44 to $65 million in the fourth quarter, related to the acquisition.

Separately, gaming software firm

Playtech

struck a deal with Sportech to provide e-gaming solutions for a 9.99% stake in the newly formed group.

-- Reported by Jeanine Poggi in New York.

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