Despite speculation, analyst can't see Bally-Aristocrat deal

26 February 2007

LAS VEGAS, Nevada -- Speculation that slot maker Bally Technologies might be acquired by Australian rival Aristocrat Technologies has sent the Las Vegas-based company's stock soaring in recent days. But one gaming analyst said Friday that even though there would be some synergies from a deal, he doesn't see it happening.

Bally Technologies shares have jumped about 7 percent this week on the New York Stock Exchange following heavy trading. Market speculation, according to a report by Stifel Nicolaus gaming analyst Steven Wieczynski, is that Aristocrat, long considered a suitor for an American-based slot maker, was going to try to acquire Bally.

In November, the two companies unveiled plans to jointly produce a server-based gaming system for slot machines in an effort to beat the competition in bringing downloadable gaming technology to the casino floor. The announcement was made during the most recent Global Gaming Expo in Las Vegas.

"If Aristocrat bought Bally, we do not believe that this would be a surprise to many people as this has been talked about for some time," the Baltimore-based Wieczynski said in his note to investors.

In an interview, Wieczynski said he didn't think the deal would happen because of Bally's massive continuing legal battles with slot machine giant International Game Technology. The two companies have sued each other over various patent infringements and several cases are pending.

"If IGT wins one of the lawsuits (over the patents covering slot machines that contain a spinning wheel-based bonus system), that could be devastating to Bally," Wieczynski said.

There has been much speculation about Bally Technologies, which has spent almost two years restating its earnings back to fiscal 2003, being a takeover target.

Richard Haddrill, who took over as chief executive officer in late 2005, has previously gone into gaming companies and prepared them for sale. He was CEO of Powerhouse Technologies when it was sold to Anchor Gaming in 1999.

Bally Technologies spokesman Marcus Prater said Friday the company's policy is not to comment on rumors and Wall Street speculation. An Aristocrat spokesman wouldn't comment, but company sources said there wasn't any truth to the speculation.

Wieczynski said that if a merger between Bally and Aristocrat were to happen, it would benefit both companies. In addition to their work on a server-based gaming system, Bally and Aristocrat are also linked by an executive -- Bally's chief operating officer, Gavin Isaacs, is the former president of Aristocrat and is widely credited with changing the company's fortunes in America.

"We continue to believe that Bally's slot product, while improving, is still miles behind IGT and WMS Gaming," Wieczynski said. "A sale would make sense since Aristocrat would be able to provide a solid video slots product and Bally would be able to provide a respected American name and manufacturing plant. Aristocrat would also give Bally a footprint into the emerging Pacific-Asian region. These two companies combined would clearly be a leader in the systems business, as well, in our opinion."

Bally shares closed up 18 cents, or 0.82 percent, Friday to finish the week at $22.15.


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