Shares of Bally’s (NYSE:BALY) are trading slightly lower Thursday after the regional casino operator rejected a $38 per share takeover offer from hedge fund Standard General — its largest investor.
Launched in January, the proposal valued the Rhode Island-based gaming company at about $2 billion. At the time of the offer, some analysts speculated Standard General, or perhaps another suitor, would come forth with a higher offer for Bally’s. Additionally, there were concerns Gamesys executives that joined Bally’s when the latter acquired the former in 2021 would balk at the offer price. That’s because it was lower than the price at which they received equity in the gaming company.
While Bally’s offered cash for Gamesys, there was an option for the latter to receive shares in the buyer. When the deal closed, Bally’s stock was trading over $50. It subsequently tumbled and never hit the $38 Standard General offered, indicating Gamesys executives were likely reluctant to sell at deeply discounted levels.
Bally’s stock is down 21% year-to-date and resides below $30 today. But leadership believes compelling opportunities are afoot.
The company has very substantial opportunities before it, including the integration of the Gamesys acquisition, the build-out of Bally’s North American interactive business and the continued strategic expansion of our land-based footprint in the U.S. With these opportunities in front of us, we have great confidence in the future as we move forward,” said CEO Lee Fenton in a statement.
Standard General founder Soo Kim said he’s disappointed in the outcome, but adds his investment firm intends “to remain a supportive, long-term investor in the company.”
Perhaps sensing opportunity to buy some of its battered shares at a discount, Bally’s announced a tender offer for $300 million to $500 million of its stock.
“Bally’s simultaneously announced that its board of directors determined that Bally’s should pursue initiating a cash tender offer for its shares. It is anticipated that the tender offer will involve $300 million to $500 million, and will be structured in a Dutch auction format,” the company said in the statement.
The Dutch auction methodology is different than repurchasing shares on the open market. In a Dutch auction, the price of what’s being sold is determined by accounting for all bids to arrive at the highest price. Other gaming companies successfully reduced shares outstanding tallies via Dutch auctions in recent months.
“We view this as a positive outcome for the shares,” said Stifel analyst Jeffrey Stantial in a note to clients.
He rates Bally’s stock a “buy,” with a $56 price target.
What’s Next for Bally’s
While the pace of consolidation and other transactions remains brisk in the gaming industry, it’s not clear if another suitor will emerge for Ballly’s. It’s also uncertain what the necessary price is to compel management to accept a takeover offer.
For now, the company could opt to focus on its North American interactive business and stemming losses at that business. The operator reported first-quarter results today with earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) and revenue missing Wall Street forecasts.
Bally’s North America interactive operation lost $19 million in the March quarter, more than double the loss in the prior quarter.
“Nonetheless, $19M marks a large sequential increase from the $9M invested in Q4, and seems to suggest management’s prior $60M guidance for FY22 may need to drift higher,” adds Stifel’s Stantial.
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