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Summary

  • Scientific Games is acquiring Bally Technologies for $83.30 per share in cash with the financing already in place.
  • I still see shares as a buy since they're trading $5 below the offer price.
  • The buyout was not anticipated back in February, but appears to be happening due to consolidation in the space.

I profiled Bally Technologies (NYSE:BYI) earlier this year and told investors to "buy the dip in Bally Technologies." Shares had sold off due to poor results reported by competitor International Game Technology (NYSE:IGT). Shares sold off from their 52 week highs to around $67. I bought shares on the dip because I thought and still think Bally Technologies is the best company to own in the space.

I'm not too pleased with the offer from Scientific Games (NASDAQ:SGMS). For one, the offer price is just a slight premium over the 52 week high of $82.67. And second, Bally is being bought by its much smaller competitor. Bally's current market cap is around $2.36 billion, while Scientific Games has a current market cap of only $719 million. Scientific Games is already heavily leveraged with $3.2 billion in debt on its books and only $169 million in cash. When the transaction is complete, Scientific Games will have about $8.3 billion in debt.

It looks like a desperate move by Scientific Games after Gtech (OTCPK:GTKYY) agreed to buy International Game Technology. I will not own shares of the new company because of the debt. I think Bally Technologies is the best company in the space and I'm hoping another offer comes in, either from a competitor or a private equity firm. That's why I'm not selling my shares at the moment.

Disclosure: The author is long BYI. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Update: Bally Technologies Buyout