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Acquisition of WMS by Scientific Games | 14 February 2013 : WorldCasinoYellowPages

Acquisition of WMS by Scientific Games

... 14 February 2013

Acquisition of WMS by Scientific Games

Thursday saw WMS, i.e. WMS Industries – the slot machine manufacturer being acquired by Scientific Games with an investment of $1.42 billion while the Ameristar Casinos (ASCA) has been taken over by Pinnacle Entertainment, i.e. PNK that paid an amount of $869 million for the same, approx one month ago. The WMS shares are being purchased by Scientific Games @ $26 per share that could be the toughest deal for the shareholders of WMS that registered a downward trend in its income during the past year and the buyout offer came as a surprise. No other bidder could come forward for purchasing the shares of WMS in the context of JP Morgan’s revelation that no more wagerers would be offered the premium valuation since facilitated to WMS. Friday witnessed the stocks of WMS close at $24.69, a discount of five percent to the offer of SGMS with the fears of the deal to fall apart at some juncture. However, SGMS would be there to give financial assistance through a term loan extended over seven years and the difficulties could be overcome.

After the announcement of the bid by the Pinnacle, the buyout price of Ameristar was surpassed with the speculators expecting a prospective bigger offer from MGM, i.e., MGM Resorts International or any other suitor. It could prove a high-risk and high-reward deal for Scientific Games. The CEO of Scientific Games, Lorne Weil termed the deal a fruitful one. He expressed that acquisition of WMS would lessen their losses and burdens as the property is a good revenue generator and an image creator for them.

Jeff Lipkin, the CFO of Scientific Games says that seventy five percent of the business is reaped through the US whereas big income is generated through its dealings through the global channels. Weil said that prominent Greek operators like OPAP SA, i.e. OPAP.GA - almost all of them the partners of SG are in the process of transforming their trade into the gaming machine space. Scientific Games is eyeing on Illinois too where the former is overseeing the contract to command a large number of VLTs, i.e. the video lottery terminals.

Unlike the Pinnacle-Ameristar merger wherein one physical property was completely gulped down by the other; the deal of WMS and Scientific Games stands on mutual benefit basis and not on competition in any manner, said Weil. In fact, both of them are engaged in production of the slot machines, added Weil. The Scientific Games earned about eighteen percent of its yearly income through the gaming segment and they always hunt various bazaars whereas a large number of casinos are fed by WMS that is a great supplier to them. Different bingo halls and pubs in Europe are on the list of Scientific Games that has its business links with them in respect of the machines. Thirty thousand machines of SG are running on a single country-wide server in UK alone, said Weil and it could prove a great boost for WMS for its development.

There are the interactive segments of SG and WMS that can work on mutual benefit basis. WMS’s Williams Interactive and Scientific’s SciPlay could boost cross selling in respect of B2G customer base of SciPlay and B2C social & Mobile gaming platforms of William Interactive. All in all, both the concerns could reap the big benefits in the gambling industry as far as the supplier and customer oriented aspects are concerned, says Weil.

The deal brings with it few drawbacks too because of the poor performance of the two companies in the past. While SG put in its best efforts for expansion of interactive trade in the US, its counterpart WMS was on the losing side in terms of its shares in the US. Then there could be the combined debt of the two companies that comes out to approx $3.1 billion in great contrast to income of just $1.6 billion. They could land into trouble in case their joint revenues do not grow considerably. The future depends entirely upon the performance of the joint venture that requires their best efforts.

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