With 2013 shaping up as a good year for slot sales, Scientific Games has chosen this moment to pounce upon WMS Industries, one of the oldest, biggest and most-respected firms in the industry. SGMS shares promptly leapfrogged from $8.93 to $10.82 a share, then fell into a day-long swoon, settling back towards yesterday’s prices. WMS shares, however, went KA-CHING! They rose 59% from yesterday, nearing $25/share as of this moment, albeit still almost 100% below where WMS traded in 2009-10, which look like halcyon years in retrospect. Unlike the extremely short-lived SGMS rally, the WMS one is holding its ground. The deal could set off a spasm of consolidation in the manufacturing segment of the gaming industry, much like the one that occurred around the turn of the century.
Perhaps the sudden “cardiac event” of Scientific Games stock reflects the shock of a company with a market capitalization of $800 million making a play for one of almost double the value: $1.4 billion in market cap. Scientific, which specializes in lottery-related products, hit bottom last August but has remained in a mostly downward trend from a year ago, when it hit $13/share. As International Game Technology shares fell toward $15 today, the WMS takeover was a dispatch that embattled IGT CEO Patti Hart didn’t need to hear. (Since Hart archnemesis Jason Ader is also a board member of Las Vegas Sands, one must wonder at the extent to which he may be acting as a catspaw of Sheldon Adelson, who’s trying to smother U.S. online gambling in the cradle.) However, she can point to WMS’ recent success in the social-gaming sphere to make the argument that IGT is presently undervalued.
For $1.5 billion (including debt assumption) or $26/share, Scientific buys itself greater respectability and a huge product line. Plurality owner Ron Perelman also got something of a bargain, paying 6X cash flow for WMS. Still, Deutsche Bank analyst Carlo Santarelli used terms like “rich” and “massive premium and risk,” and “somewhat daunting” to describe the deal. “On the positive side,” he wrote, “the deal combines two companies in non-competitive business lines with significant trademark portfolios and content libraries which can cross pollinate.” But he opined that neither company was “trending in the right direction” and was skeptical of the projected $110 million in consolidation-related savings, since there is little overlap between each company’s product line. He also was dismayed by Scientific’s “inability to generate meaningful cash flow and de-lever the business ” which is unlikely to be relieved by any significant cash flow from WMS, inhibiting the growth of either firm. He dismissed the deal as a one-off and highly unlikely to spark a bidding war. Normally, this is the part of our program where we bring on J.P. Morgan’s Joseph Greff for a contrasting view, but so far he hasn’t said “boo” about the deal.
The Cosmopolitan of Las Vegas needs more problems like CEO John Unwin (left) needs a hole in his head but it’s got a new one: a picket line. The Culinary Union is conducting “informational” picketing of the Cosmo today, to publicize the lack of a collective-bargaining agreement with the $4 billion, Deutsche Bank-owned casino. True, the Cosmo is financially strapped, but so are most of its rivals on the Las Vegas Strip and they’ve not required a year and a half to reach terms. What’s up with that, Cosmo?
“Former power broker” (read: super-sleazy industry operative) Harvey Whittemore won’t be going on trial until April, at the earliest. He’s under indictment for allegedly violating campaign-finance laws to funnel money to the reelection of Sen. Harry Reid (D-NV). Old Sixty Votes has not been implicated in Whittemore’s supposed scheme, although he’s been known to do big favors for the strong-arming lobbyist in his time.
What the hell’s the point of trying to ambush drunk drivers on Super Bowl Sunday, if you tell them where you’re going to be lying in wait? (Near Boulder Station, if you simply must know.) For that matter, given the hair-raising recklessness I see on a daily basis — just getting to and from work means gambling with your life — how’s Las Vegas Metro going to distinguish drunk driving from everyday idiocy?