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
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- $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