Lorne Weil predicts rapid boost to Scientific Games’ earnings per share and never-seen-before games
Scientific Games CEO and chairman Lorne Weil has described the agreement to acquire WMS as “the opportunity of a lifetime” for both companies to boost financial performance and product offerings.
Discussing the US$1.5bn, $26 a share agreed acquisition of the slot game manufacturer in a conference call just half an hour after the announcement, Weil highlighted the significant boost he anticipated to Scientific Games’ earnings per share (EPS), as well as the chance to combine creative expertise to create new, unique games. Scientific Games anticipates the acquisition will officially close by the end of this year.
On the financial benefits of the acquisition, Weil said: “A very, very different financial profile emerges almost immediately because for the merged company, what in our case has been relatively modest EPS, certainly in relation to what our EBITDA has been, almost immediately certainly within a year or two, we would anticipate very very significant reported EPS.”
The lottery and gaming software provider anticipates to generate $110m in anticipated cash flow savings on an annual run-rate basis. Combined, the two companies recorded US$1.623bn in the 12 months up to 30 September 2012, as well as a combined attributable EBITDA of $669m including anticipated synergies.
Weil added that the second main benefit of the acquisition was the potential for the two companies to work together to develop new games as an “even more compelling” advantage than the financial one: “Here we have a case where the complementarities [sic] first and foremost has huge opportunities for revenue synergy… to market and sell each other’s products and systems and services through the other’s channels of distribution, and also to create new products and systems and services that neither of us is offering to the market at this present time.
“But as a result of the complementarity [sic] of our capabilities, [we] will create products not only that neither WMS nor Scientific Games have ever seen, but indeed I think that neither the gaming market nor the lottery market has ever seen, and I’m very very excited about that,” he continued.
Weil said there was “no competitive overlap between Scientific Games and WMS” in terms of their business strategies and as a combined company, Scientific Games and WMS can offer a more complete product offering – while both currently offer slots, the former also has sports lottery products, draw games and electronic instant tickets, while the latter provides video poker, casino games and multi-player games as well as social games.
When questioned by analysts Weil argued that the two businesses were a good match because while Scientific Games’ income is increasingly being generated from international markets. “WMS is almost the mirror image of that, with about 75% of the business being in the United States.”
Referring to Scientific Games’ market penetration in China, the rest of Asia, Europe and Latin America, Weil said he was “confident our footprint can be helpful for expanding WMS’ business in these territories”.
Weil also predicted that an increasing number of state-owned and private lotteries are looking to offer gaming products of which WMS would now be able to profit from, citing in particular the Greek lottery’s privatisation, with an offer accepted from an OPAP-led consortium including Scientific Gamesaccepted in December last year.
When asked during the call about Scientific Games’ approach to the US market, currently regulating on a state-by-state basis, Weil said: “That would seem to very, very strongly favour the approach that we’ve been orientating ourselves around, which is built around the relationships that we have in every one of these states and integrating into that all the things that WMS has been doing.
“Certainly if the situation stays fundamentally the way it is now, then I think the combination of the Scientific Games and WMS online strategy and activities would be operating in an obviously very favourable environment,” he added.
Shares in WMS closed last night at $16.37 a share, while news of the deal sent WMS’s share price up 56% in pre-market trades to $25.60 a share.