Market Snapshot
  • U.S.
  • Europe
  • Asia
Ticker Volume Price Price Delta
DJIA 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 2.54 0.14%
NASDAQ 4,095.52 9.29 0.23%
Ticker Volume Price Price Delta
STOXX 50 3,155.81 16.55 0.53%
FTSE 100 6,625.25 41.08 0.62%
DAX 9,409.71 91.89 0.99%
Ticker Volume Price Price Delta
NIKKEI 14,573.10 56.83 0.39%
TOPIX 1,175.42 2.05 0.17%
HANG SENG 22,760.24 64.23 0.28%

Orange Capital, LLC Issues Open Letter to the Chairman of the Board of International Game Technology



  Orange Capital, LLC Issues Open Letter to the Chairman of the Board of
  International Game Technology

  Urges IGT to Immediately Commence “Dutch Auction” Tender Offer for 25% of
                           IGT’s Outstanding Shares

   Voices Support for the Ader Group’s Director Nominees and Agenda for IGT

Calls on IGT to Amicably Resolve Election Contest by Agreeing to Reconstitute
                   the Board with the Ader Group’s Nominees

Business Wire

NEW YORK -- February 7, 2013

Orange Capital, LLC, a New York based investment firm, has issued the
following open letter (text below) to the Board of Directors of International
Game Technology (NYSE: IGT) in response to the Company’s recent share price
performance and election contest with the Ader Group:

The full text of the letter follows:

Philip G. Satre
Chairman of the Board
International Game Technology
6355 South Buffalo Drive
Las Vegas, Nevada 89113
 

Dear Mr. Satre:

Orange Capital, LLC (“Orange Capital”) is a New York based investment fund and
beneficial owner of 1,228,562 shares of International Game Technology (“IGT”
or the “Company”) common stock. In addition, we own the right to purchase
2,400,000 shares of IGT common stock. Orange Capital has carefully studied
IGT’s operating strategy and capital allocation during the tenure of Ms. Patti
Hart as Chief Executive Officer. We have also carefully reviewed the proxy
statements and other public filings of both the Ader Group and the Company in
connection with the election contest at the upcoming Annual Meeting scheduled
for March 5^th, 2013.

IGT’s valuation is near its all-time low on the basis of net income and cash
flow. We believe this reflects the investment community’s lack of faith in the
operating strategy and capital allocation decisions of IGT management and the
Board of Directors (“Board”). Based on the Company’s fiscal 2013 guidance, IGT
will generate approximately $400 million of after-tax free cash flow (“FCF”).
This represents nearly 10% of the Company’s current market capitalization.
Specifically, we have two recommendations for the Board:

      1.   Immediately commence a “Dutch Auction” tender offer for 25% of
           IGT’s outstanding shares; and
 
           Amicably resolve the ongoing election contest with the Ader Group
      2.   by agreeing to reconstitute the Board to include the Ader Group’s
           director nominees.
 

IMMEDIATELY COMMENCE A DUTCH AUCTION TENDER OFFER FOR 25% OF SHARES
OUTSTANDING

We trust the Board shares our view that the Company’s common stock is
significantly undervalued.

An immediate Dutch Auction tender offer for 25% of the outstanding shares
would cost approximately $1.2 billion at a slight premium to current market
prices and would be approximately 22% accretive to earnings per share assuming
a 6% funding cost. Given IGT’s current Net Debt/EBITDA^1 stands at only 1.9x,
we believe there is ample balance sheet capacity for an accelerated return of
capital.

Following the Dutch Auction, IGT would still generate approximately $350
million of FCF and the Company’s Net Debt/EBITDA would fall to approximately
3.0x by the end of fiscal 2013. The Company would maintain significant
financial flexibility and leverage would remain well below the combined
WMS/Scientific Net Debt/EBITDA of 5.0x.

IGT’s existing credit facilities limit the Company’s “Net Funded Debt Leverage
Ratio” to 3.5x. While the Dutch Auction tender offer may require an amendment
from the Company’s lenders, given current credit market conditions and IGT’s
resilient cash flows, we believe the Company’s lenders would grant an
amendment on reasonable commercial terms, if required.

DROP THE OBJECTION TO THE ADER GROUP NOMINEES AND SEEK AMICABLE RESOLUTION TO
THE ELECTION CONTEST

We believe an election contest is not in the best interests of stockholders
and the Company should seek a mutually agreeable resolution with the Ader
Group, including Board representation. In its proxy materials and public
statements, we believe the Ader Group has identified significant challenges
facing the Company. We also believe the Ader Group has nominated three highly
qualified individuals who can bring substantial expertise and talent to the
Board. We fully support the Ader Group’s agenda.

We are extremely disappointed that the Company has engaged in a public
mud-slinging campaign against the Ader Group, including IGT’s former CEO
Charles Mathewson. We have a great deal of respect for Jason Ader, one of the
gaming industry’s most highly regarded financial analysts. Mr. Ader was the
number one ranked gaming analyst in the Institutional Investor poll for three
consecutive years and on Institutional Investor's All-America Research Team
for nine consecutive years.

Mr. Ader has also served on a public company board with an outstanding track
record for creating enormous stockholder value. Mr. Ader has been a member of
the Board of Directors of Las Vegas Sands Corp. (“Sands”) since early 2009.
Sands is one of the gaming industry’s most admired companies and a significant
customer for IGT. During Mr. Ader’s tenure, Sands’ stockholder returns and
capital management have been nothing short of spectacular. Sands has
appreciated more than 1,000%, including dividends.  Since 2009, Sands
successfully listed its Macau operations, refinanced its debt obligations, and
paid special stockholder dividends from excess capital.

With respect to Mr. Mathewson, we find IGT’s attempts to discredit him highly
unproductive. Mr. Mathewson created enormous stockholder value during his
tenure at IGT, and he maintains a strong reputation amongst the financial
community and with the Company’s gaming customers. We are not alone in finding
your comments towards Mr. Mathewson distasteful and without merit. Mr. Steve
Wynn, CEO of Wynn Resorts, issued the following statement:

“I have known Chuck Mathewson both as a business man and as a friend for over
30 years. My various companies have done business with him during his tenure
as Chairman of IGT, and we have benefitted from his expertise and the
leadership he brought to the position… It was during Chuck’s time at IGT that
the company came into dominance as the principal supplier of slot machines in
the United States. Since his departure the company has seemed to have lost
that edge… I am personally saddened by what appears to be a paid professional
attempt to smear him. I’m left with the impression that such an effort is
motivated by IGT’s current management’s attempt to distract stockholder
attention from current performance."^2

We hope this letter helps the Board better understand how certain of its
stockholders may perceive the issues in this election contest. Should you have
any questions or concerns regarding our views, I can be reached at
212-375-6040.

Sincerely,
Daniel Lewis
Managing Partner
Orange Capital, LLC
 

^1 Total outstanding debt less unrestricted cash divided by last twelve months
“Adjusted EBITDA” as defined by the Company

^2 “Statement on Behalf of Steve Wynn Regarding Chuck Mathewson.” Business
Wire 4 Feb. 2013

Contact:

ICR Inc.
Theodore Lowen, 646-277-1238
Sponsored Links
Advertisement
Advertisements
Sponsored Links
Advertisement