The Ronald Perelman era is over at Scientific Games.
Through two multi-billion-dollar transactions in 2013 and 2015, the 77-year-old dealmaker oversaw the formerly lottery-centric company’s rapid transformation into one of the top three gaming equipment providers worldwide.
But during that stretch, Scientific Games was led by four different CEOs and built up more than $9.3 billion in long term debt.
So when Perelman, through his New York-based MacAndrews & Forbes Holding Co. investment vehicle, announced in July that he intended to sell his 39% stake in Scientific, analysts saw it as a potential change that would add stability to the Las Vegas-based company.
Apparently, the investment community Monday had the same opinion.
Following the early morning announcement that a group of institutional investors – led by global investment firm Caledonia – would pay $28 per share for a 34.9% stake in Scientific Games, the market reacted accordingly. The deal was a 48% premium over the company’s closing price Friday and valued by Bloomberg at roughly $925 million.
Shares of Scientific Games rose 39.33% on the Nasdaq Monday to close at $26.43, an increase of $7.46. More than 12.9 million shares were traded on the open market, roughly 12 times the average daily volume.
“We view the announcement as a clear positive for Scientific Games stakeholders,” said Stifel Financial gaming analyst Brad Boyer.
Ronald Perelman at a Nevada Gaming Control Board hearing in 2013.
Analysts focused in on several key elements of the deal, including improving corporate governance, debt reduction, and having new ownership in which no investor would own more than a 9.9% stake.
Caledonia, an Australia-based investment firm, has gaming industry experience through its current investments in sports betting and online gaming giant Flutter Entertainment and DraftKings. Caledonia was once the largest institutional investor in Australian slot machine giant Aristocrat Leisure, and Scientific Games dipped into the retired ranks of that company to reshape the board.
Former Aristocrat CEO Jamie Odell was named Scientific Games’ executive chairman, and ex-CFO Toni Korsanos is now the company’s executive vice chairman. Perelman, who had been chairman, and his two MacAndrews & Forbes associates gave up their seats on the board. An additional independent non-executive director will also join the board.
Truist Securities gaming analyst Barry Jonas said Caledonia helped facilitate Flutter’s merger with Stars Group earlier this year.
“Caledonia has historically had a long-term focused investment strategy, with a noted willingness to weather market volatility for high conviction ideas, one being online gaming as a global growth theme,” Jonas said. “Caledonia also has a history of shareholder-friendly activism.”
Odell, who led Aristocrat from 2009 to 2017 before his retirement, said in a statement that Scientific Games would be “highly focused on rapidly de-leveraging the balance sheet.” During Odell’s tenure with Aristocrat, the company’s market capitalization increased from $1.3 billion to approximately $7.5 billion.
Odell has been a special advisor to the company since May 2019.
Jonas said Odell and Korsanos have played a part in helping develop CEO Barry Cottle’s current strategy.
“Looking beyond the strategic opportunities, we expect investors to embrace the appointment of two highly-regarded former Aristocrat executives to leadership positions on the company’s board,” Boyer said. “We view this as a key first step that will likely include additional high-profile board appointments and a possible restructuring of the company’s C-suite.”
Last month, Scientific Games adopted a change in control plan to ensure the company’s leadership will remain in place should the Perelman sale occur.
The plan covers six senior officers, including Cottle, and provides cash severance plans for each executive based on salary and bonuses should the executive’s employment be terminated by the company within 18 months following a change in control.
Scientific Games called the plan “a standard, protective measure.”
Macquarie Securities gaming analyst Chad Beynon said Scientific Games’ high debt levels had been a headwind for the company over the last several years. Internal changes led to the hiring of CFO Michael Eklund and Chief Executive of Gaming Matt Wilson
“The company was able to remove $150 million in costs during the second quarter and continues to look to lowering leverage levels coming out of the pandemic,” Beynon said.
However, the cost removal comes as the company’s gaming division – 59% of its 2019 cash flow – “will continue to see headwinds,” Beynon added. He expects “uncertainty around gaming budgets for new slots and player activity across the U.S. in casinos.”
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
