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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.

Source: Update: Bally Technologies Buyout