Why The Merger Was Attractive To Bally’s Board

Merger evaluation

The Bally Technologies, or Bally, board of directors closely evaluated the proposed merger with Scientific Games (SGMS) and the transactions contemplated by the merger agreement. The board considered a range of factors before approving the merger agreement and recommending that Bally’s stockholders vote to approve it.

Why The Merger Was Attractive To Bally’s Board

Merger consideration

The $83.30 per share offered to holders of Bally’s common stock represents a significant premium over the company’s pre-merger announcement market price. Yet the extent of that premium varies depending on your point of reference:

  • 37.0% based on the closing price per share of $60.80 on July 30, 2014, the second-to-last full trading day before the delivery of the fairness opinion to the Bally board of directors
  • 33.7% based on the volume-weighted average closing price per share of $62.28 over the 30-day period ending July 30, 2014
  • 34.0% based on the volume-weighted average closing price per share of $62.15 over the 90-day period ending July 30, 2014
  • 25.5% based on the volume-weighted average closing price per share of $66.39 over the 180-day period ending July 30, 2014
  • 22.9% based on the volume-weighted average closing price per share of $67.76 over the one-year period ending July 30, 2014
  • 0.8% based on the 52-week high closing price per share of $82.67 on January 21, 2014
  • 47.4% based on the 52-week low closing price per share of $56.50 on June 5, 2014

Good value

The merger consideration of $83.30 is a valuation determined by a multiple of 10.7 times Bally’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the last twelve-month period ending June 30, 2014.

Scientific Games’ initial proposal was for $75 per share of common stock. This suggests Bally’s board of directors obtained a better offer through extensive, arms-length negotiation. Plus, the merger consideration was all cash, providing stockholders value certainty and liquidity for Bally common stock shares. As an all-cash transaction, the deal also eliminated long-term business and execution risk. Taken together, these factors made Bally’s acquisition attractive to its board of directors.

SGMS supplies gaming products to major casino operators including Las Vegas Sands (LVS). To avoid the risk of investing in a single casino stock, investors may invest in the VanEck Vectors Gaming ETF (BJK), the PowerShares Dynamic Leisure and Entertainment ETF (PEJ), and the Consumer Discretionary Select Sector SPDR Fund (XLY) that have diversified holdings in leisure companies.