Italian lottery operator GTECH wants to buy U.S. slot machine maker IGT for $6.4 billion. Is that a price too high for the synergies GTECH is likely to get? David Pollard reports.
U.S. gaming is big business. Italian lottery operator GTECH wants a share of it - and is ready to pay $6.4 billion for the privilege. Most of that will be paid as 4.7 billion in cash and shares for slot machine maker IGT of Las Vegas. GTECH will also take on the U.S. firm's net debt of 1.7 billion. A fairly hefty price tag, according to Quentin Webb of Reuters Breakingviews. SOUNDBITE (English) Reuters Quentin Webb, Columnist, Reuters Breakingviews, saying: ''By the standards of the gaming industry, it is quite pricey, I think. They're paying something like 8.7 times the EBITDA of the company they're acquiring, whereas one of the last big deals in this sector, involving a buyer called Scientific, was done at a bit more like six times. And whilst these numbers don't sound like huge multiples compared to the wider world, actually U.S. gaming is rather competitive, the people who play slot machines, it's an ageing demographic, there's quite a lot of competition and IGT itself hasn't been doing super-well, so there is quite a lot for the acquirer to prove here.'' The two companies are slightly different - GTECH famous for its lottery machines, IGT making machines you'd see in a Las Vegas casino. But the Italian gaming market shrunk by nearly seven per cent last year - the U.S. went up by the same amount. With this deal, GTECH will now derive more than half its revenues from outside Italy. And, it's claimed, sizeable synergies to boot - though those figures too could raise a few eyebrows. SOUNDBITE (English) Reuters Quentin Webb, Columnist, Reuters Breakingviews, saying: ''GTECH says they have found $280 million a year in savings and new sales they could make. That looks very aggressive compared to where analysts were estimating before they first admitted a month or so ago that there would, potentially, be a deal between the two companies. At the time, analysts were estimating synergies at a fraction of this figure.'' The two firms will combine under a new holding company. That will be based in the UK - a move which may, it's thought, offer some tax advantages.