Bally Technologies Agrees to Buy SHFL for $1.3 Billion

Bally Technologies Inc. agreed to buy SHFL Entertainment Inc. for about $1.3 billion in a deal that combines two complementary gaming-technology companies.

The offer of $23.25 a share is 24 percent higher than SHFL’s closing price yesterday, before the deal was announced. The transaction was unanimously approved by both boards, the Las Vegas-based companies said today in a statement.

Bally, which makes slot machines and lottery systems, will get access to key markets including Australia and strengthen its offering in Asia. Adding SHFL, a leader in products for table games such as blackjack and poker, will let Bally provide customers with gambling devices for the entire casino floor.

“This strategic combination will immediately create one of the world’s largest end-to-end gaming technology innovators,” Bally Chief Executive Officer Ramesh Srinivasan said today on a conference call.

The deal marks a further consolidation in the slot-machine industry as the market recovers from a global economic slump that led casinos to defer purchases of new products. In January, Scientific Games Corp. agreed to buy WMS Industries Inc. for $1.5 billion, the biggest deal in leisure and recreational products in almost two years.

Bally is paying about 16 times SHFL’s earnings before interest, taxes, depreciation and amortization, based on the equity value, compared with a median of 8.7 times for similar deals compiled by Bloomberg. About 16 percent of Bally revenue comes from outside the U.S., compared with 53 percent for SHFL, the companies said in the call today.

Earnings Growth

SHFL, which had gained 23 percent in the past year through yesterday, advanced 22 percent to $22.81 at the close in New York. Bally, which had jumped 29 percent, increased 6.9 percent to $65.13.

Bally returned to earnings growth in 2012 after two years of declines. The company today forecast fiscal 2014 earnings will rise to $3.70 to $4.05 a share, excluding the impact of the acquisition. Analysts anticipated $3.84, the average of estimates compiled by Bloomberg.

“We like the deal,” David Bain, an analyst with Sterne Agee & Leach Inc., said in a research note today, citing the company’s projected financing costs, as well as savings from combining marketing and regulatory functions. He estimated the deal would add 30 to 40 cents a share to Bally earnings in fiscal 2015 and recommends buying the stock.

Committed Financing

SHFL, formerly known as Shuffle Master Inc., had debt of $8 million and cash of $41 million as of April 30, the companies said. Bally had debt of $467.5 million as of March 31.

Based on trailing 12-month periods ended March 31 for Bally and April 30 for SHFL, the combined business generated approximately $1.3 billion in revenue and adjusted Ebitda of $415 million. The companies predict savings of $30 million, according to the statement.

Bally said it has obtained committed financing to complete the acquisition, which is expected to close by the second quarter of next year. Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc. and Union Bank NA provided the committed financing.

Bally was advised on the deal by Goldman Sachs and Groton Partners. Gibson, Dunn & Crutcher LLP was the legal adviser. Macquarie Capital is SHFL’s exclusive financial adviser and Skadden, Arps, Slate, Meagher & Flom LLP provided legal counsel.

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