Benefits cited to IGT's purchase of Double Down Interactive

LAS VEGAS, Nevada -- Analysts said Friday that the $500 million acquisition of an online social gaming company by International Game Technology has two benefits.

The transaction puts the Nevada-based slot machine maker's products in front of the booming social media market while also putting IGT out in front of the competition once Internet gaming becomes available to American customers.

IGT said Thursday it would acquire Double Down Interactive for $250 million in cash, $85 million in retention payments over the next two years and as much as $165 million in cash payable over the next three years, subject to certain financial targets.

Double Down Interactive is developer of the DoubleDown Casino found on Facebook. Launched in April 2010, DoubleDown has 4.7 million monthly active users, up from 3.3 million in October, according to AppData.com.

Nomura Holdings gaming analyst Harry Curtis said the transaction positions IGT as a growth stock.

"IGT now has a new, and the fastest growing, distribution channel for its game content, which should allow them to attract new customers to their land based (slot) machines," Curtis told investors. "(For example), someone playing Golden Goddess on a social website might be inclined to go play a Golden Goddess slot machine at a land-based casino."

Curtis said the deal places IGT in the potential Internet poker market because the company will have access to a database of social gamblers.

"Internet poker at the state level is increasingly likely to be legalized by year-end 2012," Curtis said.

Last year, IGT acquired a Swedish online gaming company that operates in Europe. The slot machine maker also bought a mobile gaming business.

"Clearly the acquisition bolsters IGT's presence in the higher growth online gaming space," Roth Capital Partners gaming analyst Todd Eilers told investors.

He said the deal was a "bold move" by IGT management and opens "another significant distribution channel for its game content."

Shares of IGT on the New York Stock Exchange closed Friday at $17.48, down 30 cents, or 1.69 percent.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said some might question an investment of $500 million by IGT in what could be viewed as a noncore business segment.

"The deal offers an attractive bolt-on acquisition opportunity that is expected to be accretive to adjusted earnings in the near term, while providing the optionality to evolve into a much more meaningful earnings contributor over the longer term should the passage of U.S. online gaming legislation finally become a reality," Wieczynski said in a research note.