CONFERENC CALL NOTES: SGMS/BYI

Wow! A shocking transaction that, along with the IGT/GTECH transactions, should transform the industry.

CONF CALL

  • Immediately accretive to cash flow and EPS
  • Deal was done in 3 weeks and 1 day
  • Expect to close transaction quickly - early 2015
  • EBITDA multiple:  10.2x excluding synergies; with synergies, 6.8x LTM multiple
  • 80% of $220m cost synergies will be achieved by end of 1st year
    • $220m breakout
      • COGS: $33m
      • R&D: $43m
      • SG&A: $144m
  • Financing with 3 banks: BofA, JPM, and DB
  • Pro-forma combined rev (LTM ending 3/31/2014):  SGMS:  $1.649bn, BYI $1.363bn
  • Pro-forma EBITDA: SGMS $544m (not including $73m unrealized WMS synergies) BYI: $466m adjusted EBITDA (not including $30m from Shuffle Masters acquisition)
  • Combined pro-forma EBITDA  $1.366bn EBITDA
  • $25m on capex synergies on an annual basis in 2nd yr after completion of deal
  • Over $1bn in cash flow
  • Tax benefits:  SGMS has large net operating losses.  Can shelter $144m in US taxes by fully utilizing its NOLs.
  • BYI will realize full $30m synergies by end of June period

Q & A

  • SGMS:  approached BYI and they agreed
  • Disagree that number of suppliers shrinking.  Industry getting broader and broader.  Consolidation doesn't affect landscape.  Plenty of competition.
  • Leverage:  would like to return leverage ratio in the mid 4s
  • Comfortable with debt maturities
  • $220m synergies doesn't include the WMS synergies
  • Capex:  area of opportunity
  • SGMS will report 2Q earnings on Tuesday. 
  • Possible revenue synergies:  social gaming content across WMS, SciGames, and BYI.  Lottery systems and BYI systems integration opportunities.
  • SGMS and BYI:  excellent standing with regulators; not concerned with potential issues with SEC
    • SGMS+BYI market share still not as big as IGT
  • IGT/GTECH:   synergies complementary with SGMS/WMS deal
  • SGMS/BYI:  more overlap than IGT/GTECH
  • No changes with bond covenants
  • Intend to keep all the brands
  • Will file a 8k merger agreement shortly
  • Current Sales force:  one for slots, one for lottery systems