Orange Capital, LLC Issues Open Letter To The Chairman Of The Board Of International Game Technology

Orange Capital, LLC, a New York based investment firm, has issued the following open letter (text below) to the Board of Directors of International Game Technology (NYSE: IGT) in response to the Company’s recent share price performance and election contest with the Ader Group:

The full text of the letter follows:
Philip G. Satre
Chairman of the Board
International Game Technology
6355 South Buffalo Drive
Las Vegas, Nevada 89113

Dear Mr. Satre:

Orange Capital, LLC (“Orange Capital”) is a New York based investment fund and beneficial owner of 1,228,562 shares of International Game Technology (“IGT” or the “Company”) common stock. In addition, we own the right to purchase 2,400,000 shares of IGT common stock. Orange Capital has carefully studied IGT’s operating strategy and capital allocation during the tenure of Ms. Patti Hart as Chief Executive Officer. We have also carefully reviewed the proxy statements and other public filings of both the Ader Group and the Company in connection with the election contest at the upcoming Annual Meeting scheduled for March 5 th, 2013.

IGT’s valuation is near its all-time low on the basis of net income and cash flow. We believe this reflects the investment community’s lack of faith in the operating strategy and capital allocation decisions of IGT management and the Board of Directors (“Board”). Based on the Company’s fiscal 2013 guidance, IGT will generate approximately $400 million of after-tax free cash flow (“FCF”). This represents nearly 10% of the Company’s current market capitalization. Specifically, we have two recommendations for the Board:


Immediately commence a “Dutch Auction” tender offer for 25% of IGT’s outstanding shares; and


Amicably resolve the ongoing election contest with the Ader Group by agreeing to reconstitute the Board to include the Ader Group’s director nominees.



We trust the Board shares our view that the Company’s common stock is significantly undervalued.

An immediate Dutch Auction tender offer for 25% of the outstanding shares would cost approximately $1.2 billion at a slight premium to current market prices and would be approximately 22% accretive to earnings per share assuming a 6% funding cost. Given IGT’s current Net Debt/EBITDA 1 stands at only 1.9x, we believe there is ample balance sheet capacity for an accelerated return of capital.

Following the Dutch Auction, IGT would still generate approximately $350 million of FCF and the Company’s Net Debt/EBITDA would fall to approximately 3.0x by the end of fiscal 2013. The Company would maintain significant financial flexibility and leverage would remain well below the combined WMS/Scientific Net Debt/EBITDA of 5.0x.

IGT’s existing credit facilities limit the Company’s “Net Funded Debt Leverage Ratio” to 3.5x. While the Dutch Auction tender offer may require an amendment from the Company’s lenders, given current credit market conditions and IGT’s resilient cash flows, we believe the Company’s lenders would grant an amendment on reasonable commercial terms, if required.


We believe an election contest is not in the best interests of stockholders and the Company should seek a mutually agreeable resolution with the Ader Group, including Board representation. In its proxy materials and public statements, we believe the Ader Group has identified significant challenges facing the Company. We also believe the Ader Group has nominated three highly qualified individuals who can bring substantial expertise and talent to the Board. We fully support the Ader Group’s agenda.

We are extremely disappointed that the Company has engaged in a public mud-slinging campaign against the Ader Group, including IGT’s former CEO Charles Mathewson. We have a great deal of respect for Jason Ader, one of the gaming industry’s most highly regarded financial analysts. Mr. Ader was the number one ranked gaming analyst in the Institutional Investor poll for three consecutive years and on Institutional Investor's All-America Research Team for nine consecutive years.

Mr. Ader has also served on a public company board with an outstanding track record for creating enormous stockholder value. Mr. Ader has been a member of the Board of Directors of Las Vegas Sands Corp. (“Sands”) since early 2009. Sands is one of the gaming industry’s most admired companies and a significant customer for IGT. During Mr. Ader’s tenure, Sands’ stockholder returns and capital management have been nothing short of spectacular. Sands has appreciated more than 1,000%, including dividends. Since 2009, Sands successfully listed its Macau operations, refinanced its debt obligations, and paid special stockholder dividends from excess capital.

With respect to Mr. Mathewson, we find IGT’s attempts to discredit him highly unproductive. Mr. Mathewson created enormous stockholder value during his tenure at IGT, and he maintains a strong reputation amongst the financial community and with the Company’s gaming customers. We are not alone in finding your comments towards Mr. Mathewson distasteful and without merit. Mr. Steve Wynn, CEO of Wynn Resorts, issued the following statement:

“I have known Chuck Mathewson both as a business man and as a friend for over 30 years. My various companies have done business with him during his tenure as Chairman of IGT, and we have benefitted from his expertise and the leadership he brought to the position… It was during Chuck’s time at IGT that the company came into dominance as the principal supplier of slot machines in the United States. Since his departure the company has seemed to have lost that edge… I am personally saddened by what appears to be a paid professional attempt to smear him. I’m left with the impression that such an effort is motivated by IGT’s current management’s attempt to distract stockholder attention from current performance." 2

We hope this letter helps the Board better understand how certain of its stockholders may perceive the issues in this election contest. Should you have any questions or concerns regarding our views, I can be reached at 212-375-6040.
Daniel Lewis
Managing Partner
Orange Capital, LLC

1 Total outstanding debt less unrestricted cash divided by last twelve months “Adjusted EBITDA” as defined by the Company

2 Statement on Behalf of Steve Wynn Regarding Chuck Mathewson .” Business Wire 4 Feb. 2013

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