Poker machine maker Aristocrat (ALL) is making a big play for growth in the huge US market by launching a $US1.3 billion bid for privately-owned American rival machine maker, Video Gaming Technologies (VGT).
The deal, which will take the best part of a year to complete because of the necessary regulatory clearances, seems to be designed to give Aristocrat a greater presence in the key tribal casino market in North America.
The bid will be paid for in cash – to help meet the huge bill (over 40% of Aristocrat’s near $3 billion market value as at Friday’s close) the company will refinance its debt facilities into a new $1.4 billion debt package, which is expected to be completed by the end of the first half of 2015.
Aristocrat says it will provide earnings per share growth in the low-to-mid teens.
“The strategic and financial benefits are compelling for Aristocrat shareholders,” chief executive Jamie Odell said in a statement to the ASX yesterday.
"VGT has a complementary product offering and provides a unique opportunity to accelerate our growth in the US recurring revenue segment, which has for some time been an important strategic objective," he said.
It also increased revenue from the North American market from 48% to 60% of group revenues. That makes the company very dependent on the health of the US economy and gaming market.
ALL YTD – Aristocrat bets big in the US
Aristocrat currently has about 8,200 machines installed in the US, meaning the deal is significant for expanding that installed base by 150%. It will also mean the company will be expanding the range of products it can offer to gamblers.
To help finance the bid, the company will ask shareholders to contribute with a fully underwritten placement to institutional investors of $A375 million placement to Ainsworth family shareholders of up to $30 million and a share purchase plan to all eligible shareholders in Australia and New Zealand up to $A30 million.
The Ainsworth Offer and shareholder offer will be capped at $A60 million.
That means the company’s debt will rise by close to $A900 million once the takeover is done and the new debt package is bedded down.
Retail shareholders will be also be able to buy up to $A15,000 in new shares.
Aristocrat shares closed last Friday at $5.39.
Trading was suspended yesterday to allow the placement to take place.
