Italian lottery operator Lottomatica will gobble up GTech Holdings for $35 a share cash, or about $4.8 billion including assumption of debt.
The Italian lottery operator announced the transaction early Tuesday and noted that the price represents a 15% premium to the U.S. gambling-equipment and service company's value on Sept. 9 — the day before it announced plans to seek a buyer for the company.
Total value of the deal, including assumption of debt, is roughly $4.8 billion. GTech of West Greenwich, R.I., (GTK) posts annual sales of about $1.2 billion, but the combined company will have operations in about 50 countries and 6,300 employees. Lottomatica estimated the merged company's 2005 revenues at about $1.9 billion.
Lottomatica will fund the purchase through available cash, a $1.7 billion rights issue, a $900 million securities issue and a $2.3 billion loan. Gtech holders will get cash for their shares and the stock will be delisted.
GTech's chief executive, W. Bruce Turner, will take over as CEO of Lottomatica.
Shares of GTK were down about half a percent to the $33 range heading into the final hours Tuesday. The stock came into the back end of 2005 at its highest levels in several years. After popping north of $32 in early 2004 the stock slid down to $20 and change by June of that year after the company was sucked into a bribery scandal in Brazil — and had to cut its profit outlook when a court ordered some payments withheld.
Steve Kent of Goldman Sachs attributed the Tuesday pressure to the timing of closing — expected in mid-2006 — and a possibility "the closing date may slip along with investors concern about financing risk associated with the transaction."
In a note to investors, Kent said "the announcement made no mention of GTK's plans to acquire Atronic, which could be another factor in affecting the timing of the deal."
Celeste Brown at MoganStanley sees few changes to the U.S. lottery industry as a result of the pact.
"GTech will likely retain all of its contracts in their current form (as has happened with previous lottery company transactions), and given that Lottomatica is not a vendor of lottery services, we see no impact to Scientific Games or other U.S. vendors from changes in the competitive landscape," she wrote Tuesday.
"Internationally, the combination presents a more interesting change in business model," Brown added. "The combined company will now be able to provide services across the lottery spectrum including both logistical operator type services and the technical vendor services GTech specializes in."
Shares of Scientific Games (SGMS) got a modest lift on the news, gaining as much as 2% in afternoon action.
The US is the world's most powerful country. But I can see another taking over.