IGT share price surges 15 percent on reports company is for sale

LAS VEGAS -- Reports that slot machine giant IGT - International Game Technology has been put up for sale didn’t surprise Wall Street.

Investors reacted to the news by sending the company’s share price up almost 15 percent Monday.

An IGT spokesman declined to comment on the report from Reuters, which said the company hired investment bank Morgan Stanley to field sales offers.

Eilers Research founder Todd Eilers, however, said IGT, which has lost more than 31 percent of its stock value in the past year, could attract both strategic and financial buyer interest.

“Investors have been looking for the company to do something to create shareholder value following disappointing financial results,” Eilers said.

Reuters, citing people familiar with the matter, said IGT has been preparing itself for a sale for at least two months.

Reportedly, other slot manufacturers expressed interest in acquiring IGT.

“It is IGT’s policy not to comment on rumors,” company spokesman Phil O’Shaughnessy said in an email. “As the industry leader in a market that has been consolidating, it is not unusual for IGT to be a topic of speculation.”

Shares of IGT, which are traded on the New York Stock Exchange, jumped in the last hour the market was open after the reports surfaced. The company’s share price closed at $14.31, up $1.80 or 14.39 percent. IGT shares continued their rise in after hours trading, climbing another 14 percent.

IGT has been under fire since March, when the company laid off 7 percent of its global work force to save costs and lowered its fiscal 2014 guidance. In April the company reported a 66 percent decline in second quarter earnings and a 15 percent decline in net revenue.

Last week, Credit Suisse gaming analyst Joel Simkins said in an investors note IGT’s management was “realistic about the challenges it faces” and was “realistic about the time required to mount a turnaround.”

One solution that Eilers said has been discussed was spinning off the company’s social gaming business, which is part of the company’s interactive gaming division. Revenue from the interactive division grew 20 percent in the most recent quarter.

The gaming equipment sector has experienced consolidation in the past year. Bally Technologies acquired SHFL entertainment for $1.3 billion while lottery provider Scientific Games bought WMS Industries for $1.5 billion.

Eilers said a financial buyer for IGT could be Apollo Global Management, one of two private equity group owners of Caesars Entertainment Corp.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said private equity has a long interest in gaming.

“IGT’s depressed valuation would pique the groups’ interest in the name,” Wieczynski said. “At this point in time, we still view a private equity bid as most likely; however, we do believe bids from several international manufacturers with both the requisite balance sheet capacity and a desire to considerably expand its North American market presence could emerge.”

Wieczynski said Lottomatica or Konami Gaming could be taking a long look at IGT.

Eilers said other interested parties could include GTECH Corporation and Novomatic AG.”They have little U.S. casino market exposure but have identified the U.S. market as a key component to their growth strategy,” Eilers said.