Weekly European Monitor: France Downgraded and Draghi’s Strong LTRO Message

No Current Positions in Europe


European capital markets and the EUR-USD turned sharply this morning on rumors that Standard & Poor’s would downgrade numerous Eurozone countries today, including France.  We authored a note on 10/18/11 titled “France is Going to Get Downgraded”, so today’s action by S&P to cut France’s AAA sovereign credit rating one notch to AA+ didn’t come as a huge surprise, and was well anticipated by the market over the last weeks. S&P stated, "we believe that there is at least a one-in-three chance that we could lower the rating further in 2012 or 2013."


However, as Moody’s and Fitch join the downgrading club, Eurocrats will have to answer to the AAA-rating of the EFSF, a facility built on the collateral of its largest contributors, Germany and France, at 27% and 20%, respectively. This portends that yields should rise on EFSF bond issuance going forward, which of course runs squarely counter to the purpose of this funding facility issuing “cheap” debt to ailing sovereigns. In essence, the EFSF should be downgraded to AA as well. The French Finance Minister said today’s downgrade is not a catastrophe, yet stated plainly, downgrades will increase the debt servicing costs which will put pressure on already bloated deficit and debt levels of France, and many European sovereigns like them. France in particular is running against a 90% debt to GDP ratio. Further, expect France’s downgrade to increase the already loud calls that the size and strength of the EFSF is insufficient to handle sovereign and banking bailout needs.


Announced today at 4:30pm EST, S&P placed the ratings on all but 2 of the 16 Eurozone sovereigns of negative and all 16 have been removed from creditwatch.


Summary of downgrades:

Austria to AA+/Negative from AAA/Watch Negative

Cyprus to BB+/Negative from BBB/Watch Negative (now junk)

France to AA+/Negative from AAA/Watch Negative

Italy to BBB+/Negative from A/Watch Negative

Malta to A-/Negative from A/Watch Negative

Portugal to BB/Negative from BBB-/Watch Negative (now junk)

Slovak Republic to A/Stable from A+/Watch Negative

Slovenia Republic to A+/Negative from AA-/Watch Negative

Spain to A-/Negative from AA/Watch Negative


Summary of affirmations:

Belgium AA/Negative

Estonia Republic AA-/Negative

Finland AAA/Negative

Germany AAA/Stable

Ireland BBB+/Negative

Luxembourg AAA/Negative

Netherlands AAA/Negative 



Asset Class Performance:

  • Equities: European indices had a mixed week largely within a tight +/- range. Top performers: Hungary 7.7%; Italy 2.5%; Cyprus 2.2%; Spain 1.9%; France 1.9%. Bottom performers: Portugal -2.1%; Slovakia -1.0%; Ukraine -1.0%; Netherlands -0.6%; Greece -0.4%
  • FX: The EUR/USD -0.27% week-over-week. Divergences: PLN/EUR +1.9%, Hungarian Forint/EUR +1.31%%, Iceland Krona /EUR -0.72%
  • Fixed Income: 10YR sovereign yields broadly decreased w/w, led by Greece -107bps to 34.36%; Portugal -90bps to 12.46%; Italy -50bps to 6.64%; Spain -47bps to 5.22%. In context, Italy’s 10YR was as high as 7.14% (on 1/10) this week. 

Weekly European Monitor: France Downgraded and Draghi’s Strong LTRO Message  - 1. yields



Contextualizing Europe’s Standing:

What’s additive to this week’s discussion of Europe is Draghi’s positioning of the LTRO as a facility that’s helping banks buy time to improve their liquidity standing and his optimism that the credit markets are beginning to loosen on the margin. To the latter point and the naysayers, it’s suggested that the funds borrowed from the LTRO at 1.00% are simply being deposited at the ECB’s overnight facility at 0.25%, indicative of the defensive outlook of banks [to actually take a 75bps hit on the spread] and therefore the continuation of a frozen credit market. Draghi, however, stressed in the press conference following Thursday’s decision to leave main rates unchanged that the banks participating in the LTRO were not [all] the same banks that are re-depositing with the overnight facility. (For more on Draghi’s positioning see our note on 1/12 titled “ECB Press Conference Notes: Draghi Stands Strong Behind LTRO”). And in so many words he concluded that we’re beginning to see the initial signs of credit flowing. 


The key risks for European markets, however, remain in two channels: the banks and sovereigns. In the Q&A of the ECB’s press conference, Draghi made some important comments on both fronts. While the ECB is not the sole leader in sorting out Europe’s fiscal imbalances (we’d argue that German Chancellor Merkel plays one of the key roles), the ability of the ECB to take leverage/debt on its balance sheet is of critical concern, and again Draghi reiterated that the EFSF is its own independent facility. In essence, the ECB will not contribute to the facility in any form, or directly aid sovereign or banks, outside of its “temporary” SMP facility to buy secondary sovereign bond issuance. [Since May 2010, the SMP has purchased 213B EUR].

While sovereigns may have some relief from the SMP program, there’s no facility to directly aid/address Europe’s banks. A good preview of potential dark clouds for banks that need to raise capital is Italy’s Unicredit. Its equity shares fell -36% last week after the bank announced a €7.5B rights offer on January 4th, equating to a market cap drop of €8B, as new equity shares were deeply discounted. Along these lines, we want to highlight that Commerzbank has a January 20thdeadline to present a credible plan to fill €5.3B capital gap. For anyone who says that risk is fully priced in on European bank stocks, we’d reference Unicredit.


As we look out over the next weeks, we think the yield and demand of new sovereign debt issuance will continue to be held under a spotlight and markets will run off headline risk. Markets may well find comfort in the LTRO to provide the needed liquidity to banks, which has been reflected in decreases in the Euribor-OIS spread over the last 10 days. While the LTRO may prevent insolvency issues in the near term by boosting liquidity, it may only mask the issues, and surely does not offer insurance that equity holders don’t get wiped in the process. Between now and the mid-year, which is the deadline for banks to meet the 9% Tier 1 capital ratio, we may see dark clouds for banks that need to raise capital. From a policy perspective, it appears Draghi may well hold interest rates unchanged until at least March to gauge the progress of the LTRO program, and the second instalment on 2/29.



Call Outs:

  • Overnight deposits at the ECB continue to make higher highs (€489.9 billion).
  • Fitch says that 60% PSI won’t lead to sharp reduction of debt burden. Talks resume next week.
  • Germany to lower GDP outlook to 0.75% from 1.0% for 2012, according to Handelsblatt.
  • Commerzbank says it does not need more government money and will present its capital plan next Friday.
  • Italy sold €4.75B of debt today (€3B of 2014 bonds with an average yield of 4.83% vs 5.62% on Dec 29, but bid-to-cover was not good at 1.20 vs 1.36 prior). 
  • Switzerland - Thomas Jordan, 48, emerges as the frontrunner to replace Philipp Hildebrand at the SNB following a currency trading scandal with Hildebrand’s wife. Jordan must show that he can defend the 1.20 floor in the EUR-CHF, which intraday stood at 1.2081 CHF, or -0.6% w/w.


Germany (EWG) 

We’re getting more constructive on Germany on recent data, however are very aware that despite Germany’s strong fiscal position (budget deficit = 1% in 2011 vs -4.3% in 2010) and employment base (Unemployment Rate = 6.8%), the country’s capital markets are not immune to the region’s sovereign and banking contagion risk. After all, German equities were down last year -20% despite a similar strong fiscal and employment position.


The DAX, like the FTSE MIB, IBEX, and CAC, looks good from an immediate term TRADE perspective. We’d buy the DAX on a pullback.



Key Regional Data This Week:


Positives (+)

Eurozone Sentix Investor Confidence -21.1 JAN vs -24.0 DEC

Germany Exports 2.5% NOV M/M (exp. 0.5%) vs -2.9% OCT

Germany Trade Balance 16.2B EUR NOV (exp. 12B EUR) vs 11.5B EUR OCT

Germany Budget Deficit (as % GDP) for 2011 = -1% versus -4.3% in 2010

Russia Trade Balance $17.4B NOV vs $16.6B OCT

UK PPI Input 8.7% DEC Y/Y vs 13.6% NOV

UK PPI Output 4.8% DEC Y/Y vs 5.4% NOV


Negatives (-)

Russia CPI 6.1% DEC Y/Y vs 5.6% NOV

Greece Unemployment Rate 18.2% OCT vs 17.5%



Interest Rate Decisions:

(1/11) Poland Base Rate Announcement UNCH at 4.50% (expected UNCH)

(1/12) BoE UNCH at 0.50%; Asset Purchase Target UNCH at 275B GBP

(1/12) ECB UNCH at 1.00%



CDS Risk Monitor:

On a w/w basis, CDS was down across Europe, with a positive divergence from the periphery. Spain saw the largest decline at -40bps to 408bps; followed by Ireland -36bps to 675bps, and Portugal and Italy both down -25bps to 1088bps and 504bps, respectively. 


Weekly European Monitor: France Downgraded and Draghi’s Strong LTRO Message  - 1. cds a


Weekly European Monitor: France Downgraded and Draghi’s Strong LTRO Message  - 1. cds b




We’d short the cross at $1.28 for an immediate term TRADE. The EUR/USD remains broken long term TAIL ($1.40) and intermediate term TREND ($1.42) in our models and we think the lack of resolve from the newest proposals for a fiscal union will encourage greater downside. 



The European Week Ahead:


Monday:  Dec. Germany Whole Sale Price Index; Dec. UK Nationwide Consumer Confidence (Jan 16-20); Dec. Italy CPI – Final; Nov. Italy General Government Debt


Tuesday:  Jan. Eurozone ZEW Survey Economic Sentiment; Dec. Eurozone CPI; Dec. UK CPI and Retail Price Index


Wednesday:  Nov. Eurozone Construction Output; Dec. UK Jobless Claims Change and Claimant Count Rate; Nov. Italy Trade Balance and Current Account


Thursday:  Eurozone Publishes Monthly Report; Nov. Eurozone Current Account


Friday:  Germany Deadline for Commerzbank to Present Credible Plan to fill 5.3B EUR Capital Gap; Dec. Germany Producer Prices; Dec. UK Retail Sales; Nov. Italy Industrial Orders and Sales




Matthew Hedrick

Senior Analyst

Weekly Asia Risk Monitor: China’s Bottom Is Showing

Conclusion: As China draws closer to the end of a multi-year, structural deceleration in growth rates, credit conditions, which are a lagging indicator, are sending both bullish and bearish signals. Elsewhere within the region, growth continues to slow at a slower rate and inflation continues to trend down generally.


Positions in Asia: Long Chinese equities (CAF); Long Hong Kong equities (EWH); Short Indian equities (INP).



All % moves week-over-week unless otherwise specified.

  • EQUITIES Median: +1.8%; High: Vietnam +5.2%; Low: New Zealand -0.8%; Callout: Philippines and Indonesia up +13.4% and +10.4%, respectively over the LTM vs. regional median of -14.3%
  • FX (vs. USD) Median: +0.2%; High: Indian rupee +2.3%; Low: Thai baht -0.4%; Callout: Indian rupee +3.1% YTD vs. regional median of +0.3%
  • S/T SOVEREIGN DEBT (2yr yields) High: Philippines +7.9%/+21bps; Low: Hong Kong -18.4%/-8bps; Callout: Australia -25.5%/-114bps over the last six months
  • L/T SOVEREIGN DEBT (10yr yields) High: Singapore +3.2%/+5bps; Low: Japan -3.5%/-3bps
  • SOVEREIGN YIELD CURVE High: Hong Kong/Singapore +5bps; Low: Philippines -32bps
  • 5YR CDS Median: +0.3% High: Australia +4.2%/+3bps; Low: Japan -4.7%/-7bps; Callout: Japan +24.9%/+29bps over the last three months vs. regional median of -3.3%
  • 1YR O/S INTEREST RATE SWAPS Median: +0.7%; High: Indonesia +4.5%/+25bps; Low: Singapore -23.6%/-13bps; Callout: China -12.5%/-44bps over the last three months vs. regional median of -0.8%
  • O/N INTERBANK RATES Median: flat; High: China +16%/+64bps; Low: Hong Kong -33.6%/-5bps; Callout: China +57.1%/+169bps over the past month vs. a regional median of +0.0%
  • CORRELATION RISK Asian currencies continue to trade on inflation expectations, with the JPM Asia Dollar Index correlating +72% with the CRB Index on an immediate-term TRADE duration and +93% on a six-month basis. We are dovish on the slope of inflation throughout the region over the intermediate-term TREND and, thus, remain generally negative on Asian currencies vs. the USD as a result.

Full performance tables can be found at the conclusion of this note.



Chinese FX reserves are indicating a slight degree of capital outflow as dovish policy speculation is clouding the outlook for yuan appreciation.


Weekly Asia Risk Monitor: China’s Bottom Is Showing - 1


Chinese inflation data still does not auger well for dovish policy at the current juncture, however:


Weekly Asia Risk Monitor: China’s Bottom Is Showing - 2


Weekly Asia Risk Monitor: China’s Bottom Is Showing - 3



Growth Slowing’s Bottom:

  • China: DEC economic data came in better than bad: New Loans accelerated to CNY640.5B MoM vs. CNY562.2B prior; M2 Money Supply growth accelerated to +13.6% YoY vs. +12.7% prior; Export growth slowed marginally to +13.4% YoY vs. +13.8% prior; Trade Balance growth accelerated to +$3.4B YoY vs. -$8.4B prior.
  • China: While the high-frequency growth data appears to be basing, economic concerns continue to weigh on Chinese credit markets. The corporate A/AAA spread widened to a record high of 517bps earlier this week, per Chinabond.
  • Japan: The DEC Economy Watchers Survey was better than bad. The “Outlook” Index ticked down slightly to 44.4 from 44.7 prior. The “Current” Index actually accelerated to 47 from 45 prior.
  • Taiwan: Export growth slowed in DEC to +0.6% YoY vs. +1.3% prior.
  • Indonesia: The Danareska Consumer Confidence Index ticked up in DEC to 91.6 vs. 91.4.

Deflating the Inflation II:

  • China: CPI and PPI slowed in DEC to +4.1% YoY (vs. +4.2% prior) and +1.7% (vs. +2.7% prior), respectively. The former series is at a 15-month low, but still 10bps above target.
  • South Korea: PPI slowed in DEC to +4.3% YoY vs. +5.1% prior. Import Prices also slowed in DEC to +7.1% YoY vs. +11.8% prior.

King Dollar:

  • China: The combination of an outlook for dovish policy, slower international trade, and USD appreciation (vs. EUR, GBP, etc.) has China’s FX reserves continuing to decline, falling -$20B to $3.18T in DEC. The implications of this slight degree of capital outflow – which Premier Jiabao is working to prevent – is that China requires less Treasury purchases to limit yuan appreciation.
  • India: Indian corporations have a record $11.4B in dollar-denominated debt due in 2012. The large sum has weighed on the INR/USD exchange rate (-13.6% over the last six months) and dollar-denominated debt yields, which are a mere -6bps off the highs established during the thralls of OCT (vs. -97bps for Chinese corporations).
  • India: The sovereign has $64.3B in rupee-dominated notes due in 2012 (vs. only $15.3B in 2013) – a sum that will likely necessitate another year of heavy issuance and may force the central bank (RBI) to continue with its QE program beyond current expectations in order to sustain liquidity in the banking system; that outcome is incrementally bearish for the rupee. On the flip side, rate cut speculation is spurring record international inflows into India’s fixed income markets (+$3.9B in DEC). Even domestic investors are spurning gold in favor of fixed income mutual funds; assets managed by fixed income funds increased +17% MoM in DEC vs. -4.3% for gold funds. Our models don’t point to much room for the RBI to ease meaningfully in the near term, but if the RBI satisfied market expectations, we would eventually expect to see incremental downside for the rupee.
  • Indonesia: Bank Indonesia held its benchmark interest rate at 6%, citing weakness in the rupiah as a threat to their inflation outlook (IDR/USD -3.5% over the last three months). One-year interest rate swaps widened +25bps wk/wk and are now only pricing in a -25bps cut over the NTM.
  • Philippines: Central bank governor Amando Tatangco said that he anticipates easing monetary poicy this quarter – particularly if conditions in Europe deteriorate: “Given benign inflation conditions and a favorable inflation outlook, we have room to support domestic activity should the global economy deteriorate significantly.” Two-year sovereign debt yields actually jumped +21bps wk/wk, suggesting to us that the market had been pricing in some degree of easing irrespective of Europe.


  • South Korea: The Bank of Korea held its benchmark interest rate flat at 3.25%, actually threatening to hike if “price gains become chronic”. Both our models (accelerating growth and inflation in 1H12) and Korea’s interest rate swaps (1yr tenor 20bps > than benchmark rate) market view this as a very credible threat.


  • China: The China Securities Regulatory Commission stated that it will encourage long-term investors (namely insurers and pension funds) to invest in the nation’s equities. Per Chairman Gou Shuqing, “China should make investments using the 2 trillion yuan in provincial pension funds assets and 2.1 trillion in household pension fund assets.” The free-float market cap of the Shanghai Composite Index is on 4.4 trillion yuan, so any success in convincing these entities to participate in equity investing (they currently do not to any meaningful degree) could be rather bullish for Chinese stocks.
  • China: The China Banking Regulatory Commission has banned banks from transferring commercial bill assets to trusts – a common practice used to circumvent capital requirements and extend more credit. The move had a profound effect on interbank liquidity in China, with overnight Shibor increasing +116bps day/day! This move will weigh on Chinese credit growth on the margin.
  • China/Japan: Chinese officials sent Treasury Secretary Tim Geithner to Japan empty handed, as he failed to convince the Chinese to cut back on Iranian crude oil imports. Japan did, however, agree to take steps to reduce Iranian imports. Iran is a key supplier of crude to both countries.
  • Japan: Bank of Japan Governor had some fairly hawkish commentary earlier in the week: “There are limits to what monetary policy can achieve and governments must implement necessary reforms to aid the global economy. Providing liquidity as a lender of last resort is, in essence, a policy to buy time. It is essential that the necessary structural reforms take place while time is being bought, as the time that we can buy becomes progressively more expensive.” While being careful not to read too much into these words (i.e. no rate hike anytime soon), they do suggest to us that the central bank of Japan, which has been the poster child for failed Keynesian policy, is nearing the end of the rope in this regard. Shirakawa’s explicit call for Japanese fiscal policymakers to back away from their own brand of Keynesianism is a noteworthy change on the margin.
  • India: The ability of Indian companies to return capital to shareholders will be severely challenged in 2012, as they face a record $5.3B in convertible bonds due this year. Average corporate dollar-denominated debt yields are just -6bps off the high of 6.99% reached in OCT, suggesting it will be costly to refinance. The SENSEX’s -15.8% LTM drop heightens equity dilution risk as well, should corporations ultimately turn to conversion.
  • Taiwan: Tomorrow, Taiwan will host its presidential election. The market is pricing in a victory for progressive, pro-Chinese relations incumbent Ma Ying-jeou of the Koumintang Party, as the EWT put/call ratio has risen to 3.4x – just off four-year highs last reached two months prior to his first term. He is challenged by the Democratic Progressive Party’s Tsai Ing-wen and the Koumintang Party’s James Soong. Ing-wen is opposed to closer ties with the mainland and Chinese officials have stated publically that relations would suffer if Tsai wins.

Darius Dale

Senior Analyst


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Corn traded sharply lower yesterday after the USDA released its projection for higher-than-expected inventories in 2012.  Goldman is out this morning reducing its three-month corn forecast to $6.30 a bushel from $6.85. Goldman also reduced its forecasts for soybeans and wheat.  Corn prices coming down will help future COGs margin for restaurant and food processor stocks but, in the case of restaurants, the benefit will take some time to flow through to the P&Ls as inventories and contracts are worked through.











CMG: Chipotle was upgraded to Outperform from Market Perform at William Blair. 


SBUX: Starbucks named in patent infringement suit over mobile payment app.




DNKN: Dunkin’ traded up yesterday along with most of the coffee sector (PEET and GMCR traded lower).  The official DNKN IPO lockup ends in 6 trading days.


COSI: Cosi shareholder Royce & Associates filed a 13G.  Their position is unchanged.  It should be noted that the new CEO was granted 1,000,000 shares.  No other details appear to be available on her employment contract.


CBOU: Caribou gave a very strong presentation at the ICR conference.  Along with CMG, CBOU is the only company that had the unit economics to justify growth.


DPZ: Domino’s has been trading strongly for some time but slowed yesterday.  Some concerns have arisen related to FX headwinds.  Barclay’s raised its Price Target from $26 to $28 following the Investor Day. 







RUTH: Ruth’s Chris gave a preannouncement of sorts yesterday at the ICR Conference, saying that the fourth quarter was an exciting time.


BBRG: Bravo Brio also gave a fairly robust presentation at ICR. 


BJRI: BJ’s did not say anything new at ICR and continues to be the darling of the small cap growth crowd


PFCB:  PFCB has been trading well lately but our view is that investors will need to see solid results before buying in en masse again. The company is aware of the issues facing its brand but whether or not the company has the right strategy to remedy the problems is up for debate.




Howard Penney

Managing Director


Rory Green







The Macau Metro Monitor, January 13, 2012




The Circle Line, the island nation's 4th mass rapid transit line, will open a 2.4-kilometer extension this Saturday.  What the extension will do, with the opening of Bayfront station (which sits between the Circle Line’s Promenade and Marina South), is plug Singapore’s famed Marina Bay Sands directly into the public transport network – a bit of a roll of the dice on planners’ parts, given that Singapore doesn’t really want to encourage more locals to go gambling there.


John Postle, executive director of The Shoppes, MBS's lavish shopping mall, says the new station “allows our visitors to access Marina Bay Sands with ease from all parts of the island.”



MGM Macau will increase the salaries of all non-management team members by 5% and give them a Chinese New Year bonus payout.  However, MGM does not say when these will take place or how much the bonus payout will be.



WYNN said Kazuo Okada's lawsuit is "preposterous and without merit" and the company will defend all claims vigorously. Kazuo Okada had filed a motion to seek access to the company’s financial records


WYNN says this action is an attempt by Okada to deflect attention from a dispute between him and the company related to Okada’s wanting to pursue a project in the Philippines “despite repeated admonishments from the board.” This would directly compete with WYNN.  WYNN also said, “Mr. Okada received the same information as all directors with respect to charitable contributions made by the company.”



Visitors in package tours soared by 70.3% YoY to 767,208 in November 2011.  Visitors from Mainland China (574,212); Taiwan (45,522); Hong Kong (35,659) and the Republic of Korea (27,453) surged by 79.0%, 131.9%, 64.5% and 103.3% respectively. 


At the end of November 2011, number of available guest rooms of hotels and guest-houses totaled 22,335, up by 2,276 rooms (+11.3%) YoY, with that of 5-star hotels accounting for 63.5% of the total.  The average length of stay of guests held stable at 1.5 nights, same as in November 2010.




  • Price was based on comps, growth rates, management expertise, etc.  They will include Double Down in their interactive division which is incorporated in their gaming operation revenue.  Unclear how accretive the acquisition will be at this time.
  • Rumor floating around of a $140k a day in revenue attributed to Double Down
  • Allows them to reach a younger demographic with their core products.  Also allows them to add a social media layer to their casino games.
  • Zynga is the most recent comparable transaction 
  • How do you use the metric of DoubleDown's active users?  Are those actual paying users?
    • They need to look at their revenues net of what they pay to Facebook
    • Double Down generates revenues to FB and FB then remits 70% of the revenue to DoubleDown
  • Why not build the business organically?
    • Issue of time to market of at least 2 years and they believe that time to market is important for first mover advantage.  Land grab for liquidity = product performance over time
    • Worried about the distraction from their core business if they were to build from scratch - hard to do within the core business
    • From a cost standpoint, it would cost them roughly the same
  • How do their clients feel about this acquisition - i.e. IGT competing with them?
    • Thinks that this is positive for their existing customers since it's another service that they can offer 
  • Double Down has every intent to move into mobile applications.  The lion's share of their expenses is R&D.
  • They may break out interactive going forward
  • They would think about the price paid on an EBITDA multiple basis
  • Interactive is currently less than 5% of their revenues... if they fold in Double Down into their revenues they will be north of 5% but they don't need to disclose until revenues reach 10%. 
    • Sounds like it won't be 10% but they are still debating whether to break it out
  • Think that liquidity is the number one barrier to entry.  They can also quickly provide a pipeline of products into this distribution channel since they already have the games. Since it's a B to B model they rely on Facebook for customer acquisitions.
  • Wouldn't necessarily think of this acquisition as the hub of their interactive division but rather a spoke in the wheel... like Entraction. This one allows them to access the social media channel. 
  • Retention bonuses are widely distributed - paid out over 2 years based on a number of factors. 
  • There is nothing that prevents DoubleDown from expanding outside of Facebook
  • IGT's unbranded (unlicensed) products can move online in short order, but they are reviewing their license agreements to see if they can go online as well or if they require additional payments.
  • There is also a 3rd year performance based earn out. 
  • Entraction is their real money wagering product. 
  • Unclear if online gaming becomes legal and whether that will cannibilize their virtual business.
  • Monetization rate for DoubleDown is a little better than Zynga's since their gaming experience is more volatile. 
  • Expect their next 12 months of growth to be similar to what they have experienced so far



  • IGT reached an agreement to acquire DoubleDown Casino for "$250MM in cash, $85MM in retention payments over the next 2 years and up to $165MM million in cash payable over the next 3 years subject to Double Down meeting certain financial performance targets.  IGT expects to fund the transaction from cash on hand."
  • "The addition of Double Down provides IGT instant size and scale in the fast growing world of casino-style social gaming and is expected to broaden IGT's popular gaming titles beyond the physical casino to Facebook, the world's largest social network with over 800 million global users." 
  • "The transaction is estimated to be accretive to IGT's fiscal 2012 adjusted earnings and is projected to close within the second quarter of its current fiscal year.  Greg Enell will continue to lead Double Down and the company's operations will remain inSeattle, WA after the acquisition is complete.  Through the integration, IGT will operate Double Down with the appropriate level of independence needed to continue to foster exceptional growth."
  • Double Down Interactive LLC:
    • "Launched in April 2010, the DoubleDown Casino is the world's largest virtual casino and one of the top 4 social media games in 2011 as rated by Facebook.  "
      • "Currently has 4.7 million monthly active users, up from 3.3 million in October 2011." 
      • "Offers blackjack, slots, slot tournaments, video poker, and roulette to social gamers all around the world."


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