’It’s a steal!’ Shareholder tries to bag a Bally’s bargain

Bally’s insider bid, the LatAm gold rush, the price is REIT +More

Mar 12, 2024

Standard General has another go at buying the rest of Bally’s.
In +More: the M&A rollback at Entain, DraftKings hits the Jackpo(cke)t.
Tekkorp CEO makes the case for Brazilian buyouts.
Golden Entertainment CEO on the role of REITs in B&M consolidation.

I'm looking for somebody with whom to dance.

Standard General makes Bally’s bid

Lucky General: The majority shareholder of Bally’s, Standard General, has lodged a formal bid to buy the 77% of the company it doesn’t already own at a price of $15 a share, or less than half of what it offered just over two years ago.

The offer price represents a 41% premium to Bally’s closing price of $10.42 on Friday.
The share price rose 28% yesterday to close on $13.64.

Moon shot: Standard General said it has already been in talks regarding financing the transaction, which values Bally at ~$684m. Two sources independently identified Apollo as a likely source of financing.

The formalities: In a letter to Bally’s board, which tabled the offer, Standard General said it expects the company to form a special committee to consider the proposal and make a recommendation. SG said it would not proceed without the committee approving the bid, adding that a majority vote of the remaining shareholders would also be necessary.

Shareholders were also offered the chance to ‘rollover’ their shares into the post-close company.
Should the offer be rejected, SG also committed itself to remaining a shareholder.

Whaddya got? In the letter to the board – of which SGl’s Soo Kim remains the chair – the investor said the offer would allow shareholders to “immediately realize a premium price,” adding that it provides certainty when viewed against the operational and market risks.

🎊 Bally’s shares shoot up

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An underappreciated company

Don’t weigh me down: The 60% discount to the previous offer in January 2022 reflects the uncertainties surrounding the story at Bally’s, in particular, what Macquarie termed the “polarizing issue” of the financing of the permanent Chicago casino project.

The prospects of rebuilding the Tropicana in Las Vegas and a potential casino bid in New York has also weighed on sentiment.

Another sunny day: The analysts at Jefferies said the mixed Q4 earnings picture as well as the leverage concerns would “continue to provide an obstacle” for investors.

Recall, on the recent earnings call with analysts, CEO Robeson Reeves said Bally’s was “crafting a bright future” despite the issues with its regional casinos.
The analysts at JMP noted the “outstanding questions” and lease-adjusted leverage nearing 8x “have placed downward pressure on the stock,” which is now ~85% off its all-time high.
The team added that they model leverage remaining at these levels for the next several years until the final Chicago casino is completed in 2027.

Misfiring: Similarly, Truist noted the “meaningfully” changed prospects since the last offer. To the Chicago and Tropicana headaches, the team also noted Bally’s “hasn’t proven formidable” in North American online and the changes at the top of the management team.

Not working: Bally’s is now on its second US online iteration, utilizing the Kambi backend, after Bally Bet 1.0 signally failed to ignite with its own acquired sportsbook backend Bet.Works.
The to-date US failure came despite the injection of online expertise from the Gamesys buyout in 2021 for $2.7bn.

Bargain shopping: One sector investment specialist noted that if investors still believed in Bally’s then the $15 offer was a “steal” given the premium is “only really” a 7% improvement on an enterprise value perspective.

They added the bid also had significant upside built in. “We are at peak rates and so the direction of travel will be a tailwind,” the source suggested.

They noted the US economy has also proven more resilient than people have assumed, while the new Bally’s backend of Kambi and White Hat could be “game changers” in the US and they expected to see sports launch in Spain and the UK on Kambi soon.

We go again: Another potential is for a spin out of the online business.
Sources suggested buyers are “looking at Gamesys” but added the opacity with regard to the Asian-facing earnings – specifically Japan – is the cause of some concern.

What would Noel do: A major investor in Bally’s is the former majority-owner of Gamesys and now owner of the Broadwick Soho hotel in London, Noel Hayden, who accepted a large chunk of shares in the Bally's transduction.

+More deals

Entain

Table stakes: During the epic earnings call last week – an hour and a half – interim CEO Stella David unsurprisingly batted back a question about possible disposals, pointing out the new capital allocation committee “has only just really got going.”

“There is nothing to report because there is no output at this stage,” she added.
Recall, as E+M reported a few days before the earnings announcement (check your inboxes), multiple sources have confirmed Entain has put the “non-core” PartyPoker business up for sale.

Further reading: E+M gets a mention in The Times’ analysis of the prospects at Entain today.

DraftKings

Cash mountains: DraftKings may have already laid out $750m on Jackpocket but questions persist about what else it might intend doing with the cash that is due to start piling up on the balance sheet.

Urgent questions: Management has remained non-committal. The most recent comments from CEO Jason Robins stem from his fireside chat at Morgan Stanley’s tech conference last week. When asked about “capital allocation going forward,” Robins said it was a question he had been asked increasingly in the past six months.

Robins added he is being “educated” by the CFO to help him “understand different options for how we can optimize our capital structure.”
Further M&A is one obvious route but he said it was something the company had to be “very disciplined around.”

Paying it back: But, he added, “there are other ways besides M&A to use cash, like share buybacks and other sorts of things.” It may be, as one source told E+M, the “boring option” but it does look like buybacks are increasingly likely.

It is worth noting developments at another tech-led consumer darling, Uber, which recently announced it was embarking on a share buyback program. As was indicated at the time, in part this is driven by the extent to which it has previously rewarded employees – and particularly the top management – with share options.

While the two companies’ situations are far from analogous, it should be noted here that DraftKings has laid out over $1.66bn in shares-based compensation in the past three years.
As was pointed out in the Uber analysis, share buybacks are often the inverse of large share-based compensation schemes.
Research suggests that buybacks have the effect of simply reversing dilution caused by equity compensation schemes.

Holding position: Robins said last week the company was “looking at all those different options as well as how we can optimize our capital structure given the changing profitability profile of the company.” Further comments will come “sometime this year.”

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REIT place, REIT time

The price is REIT: During Golden Entertainment’s Q4 call, CFO Charles Protell provided some insight on the prospects for further consolidation in B&M gaming and the potential role for gaming REITs.

He noted the differential between bid/ask had narrowed, with vendors looking to sell based on 2021 numbers and buyers looking at 2025 estimates.
“I think it comes down to where the financing markets are at and I think those ultimately only get better,” he added.

REIT here, REIT now: For the REITs, he noted that as the cost of capital comes down “they will play a big part in advancing consolidation” in the sector. “And I'd anticipate that to happen over the course of this year,” he added.

As for Golden, Protell said the company was looking for opportunities in the range of adding $50m of EBITDA. “We’re not going to spend a lot of time with things that are smaller,” he added.
Alternatively, JMP said they see Golden as an “attractive takeout or merger candidate.”

The LatAm gold rush

Going nuts: Tekkorp CEO Robin Chhabra added his two cents’ worth over potential M&A in the Latin American space, and particularly Brazil, via a recent appearance on EKG’s Zero Latency podcast to discuss what he thinks might happen in the coming months.

“Brazil is very exciting,” he told host Brad Allen. “There are hundreds of operators targeting the country.”
“We expect the market to consolidate and normalize post regulation.”

Warpath: Chhabra said he didn’t see market leaders bet365 and Kaizen as being in the market for acquisitions, while Entain also seems unlikely given the current state of flux there. But others definitely have ambitions to either expand or establish a footprint in what will likely be the biggest market opening this year.

“I can see the US players [eyeing] Brazil as a way to dip their toes in international waters,” he said.

As was pointed out on the pod, MGM Resorts’ Bill Hornbuckle said on the company’s recent Q4 call he was “heading down to South America next week or the week after to look at a large JV.”

“Brazil is going to put internet gaming in play for both casino and sports betting, and we plan to be there when that launches,” Hornbuckle added.
Against this, DraftKings CEO Jason Robins’ comments last week should be noted, where he said any international opportunities would need to clear a “very high bar” for the company to consider dipping its toe outside of the US and Canada.

Chhabra suggested others would be eyeing opportunities, including Caesars and Flutter, which, as he noted, is active with the Betfair and PokerStars brands in Brazil but is “underweight” vs. its stated desired position of achieving podium positions in targeted markets.

Staring at the sea: “I could see them looking hard,” he said.
“I think the question is whether anyone acquires pre-regulation or whether they require greater visibility post-regulation to see who the likely winners are and then make a move.”
As he pointed out, this is “obviously more costly but perhaps provides greater certainty.”

Transaction tracker

In every home a heartache: IGT has opted to demerge its gaming and iGaming arms and merge the businesses with Everi in a transaction with an enterprise value of $6.2bn.
Better Collective has raised DKK1bn (~$150m) to fund further acquisitions.
FanDuel has acquired iCasino jackpot management system provider BeyondPlay for an undisclosed sum.
Betsson has belatedly bought its way back into the Netherlands market via the acquisition of Holland Gaming Technology for €27.5m.
Evolution has bought up iCasino tech provider Livespins for an initial €5m.
Allwyn has laid out an undisclosed sum for online instant win games provider Instant Win Games.

Calendar

Mar 12: IGT
Mar 14: MGM Resorts, Penn at the JP Morgan Conference
Mar 20: Sportradar
Mar 26: Flutter, Bragg Gaming

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