Gaming equipment provider Scientific Games adopted a change in control plan last week to ensure the company’s leadership will remain in place should billionaire Ronald Perelman sell his 39% stake in the corporation.
In a filing with the Securities and Exchange Commission, Scientific Games said the plan would cover six senior officers and provide 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.
In a statement provided by Scientific Games’ corporate communications department, the company said it implemented “a standard, protective measure,” adding that it was the result of the announcement last month that Perelman, the company’s chairman, was considering selling his stake.
“It is similar to plans put in place by many companies in such circumstances and its terms reflect the common practice in such plans,” Scientific Games said in the statement. “The plan is designed to ensure stability across our executive team during this time of transition for the company.”
The plan covers CEO Barry Cottle, CFO Michael Eklund, Chief Executive of Lottery Patrick McHugh, Chief Executive of Gaming Matt Wilson, Chief Legal Officer James Sottile, and Chief Accounting Officer Michael Winterscheidt.
Perelman, through his New York-based MacAndrews & Forbes Holding Co., said in a 13F filing with the SEC that the investor and businessman was exploring a possible sale of his more than 36.8 million shares in Scientific Games. Bloomberg News calculated the stock value at $1.5 billion.
According to the filing, Perelman has “not formulated any specific or definitive plan or proposal” and “there can be no assurance that any transaction will occur or as to the terms of any such transaction.”
Jefferies gaming analyst David Katz told investors in a research note last week that Scientific Games was “progress(ing) toward a probable change in the ownership structure.” He suggested, however, that the company’s leverage – $9.3 billion in long term debt as of June 30 – remains the primary challenge for the company, rather than any issues connected to Perelman’s stock.
Ronald Perelman at a Nevada Gaming Control Board hearing in 2013.
“We believe the potential for alternative corporate strategies and structures could present opportunities for value enhancement, in our view,” Katz said.
He suggested that there are three outcomes for Perelman’s stock – the stake could be sold in its entirety, distributed in the open market, or not sold at all.
“Our expectation is that the outcome lies among the more dynamic options and (that) the ownership structure of the company is likely to change,” Katz said.
Perelman, 77, who is currently ranked No. 63 on the Forbes 400 list of billionaires with a net worth of $6.4 billion, has built a fortune through investments in a variety of industries, including candy and cosmetics.
He has overseen Scientific Games’ rapid expansion as a gaming equipment provider starting in 2013, when the then lottery-centric company acquired slot machine developer WMS Industries for $1.3 billion. Two years later, Scientific Games bought Bally Technologies for $5.1 billion.
During that time, the company has been led by four different CEOs. Cottle has been in the position since 2018.
On July’s second-quarter earnings conference call with analysts, Cottle said the sale consideration was at an early stage. “There are very few details, and this topic will not affect our planning or day-to-day management,” he said.
Katz suggested that Scientific Games’ traditional gaming, lotteries, and associated technology “have not generated evident value expansion in conjunction with each other, which could present a range of potential strategies.”
He also said the combination of the company’s tech and digital businesses – gaming systems, social gaming, igaming, and sports betting – with the traditional lottery and gaming machine businesses “has served to temper value rather than grow it.”
During 2018 and 2019, Perelman invested more than $40 million to increase his stake in Scientific Games, whose stock price collapsed in March along with the rest of the casino industry due to the coronavirus pandemic. The stock has since rallied back.
In March, Scientific Games furloughed an undisclosed number of employees, reduced pay and work hours for others, and cut the salaries of executive leadership by 50%. Cottle gave up his entire salary. In April, the company said it had sliced costs by $100 million in the second quarter and drew down $480 million of its credit facilities, which was added to the $200 million in cash the company had on hand at the end of March.
Shares of Scientific Games closed Friday on the Nasdaq at $21.98, up 85 cents or 4.02%.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
