Bally’s and Gamesys finalise mega-merger agreement

Per the announcement, made under Rule 2.7 of the UK Takeover Code, Bally’s is to acquire Gamesys’ issued and outstanding share capital via Premier Entertainment, its wholly-owned subsidiary.

The combination will be effected through a court-sanctioned scheme of arrangement under Part 26 of the UK Companies Act.

It will see Bally’s, via Premier Entertainment, pay 1,850 pence per Gamesys share. This represents a 14.4% premium on the Jackpotjoy operator’s closing share price of 1,642 pence per share on 23 March, the final day before an announcement on talks were made.

It also represents a 41.2% premium on Gamesys’ closing share price of 1,330 pence on 25 January, the day before Bally’s made its initial proposal. For Gamesys’ three-month average closing price to 23 March, of 1,373 pence per share, it represents a 36.7% premium.

As outlined in the initial terms, Gamesys shareholders will also have the option to swap each share for 0.343 Bally’s Corporation shares. Its electing directors and shareholders have opted to take up this option for all of their stakes, with the exception of finance director Michael Mee, who will exchange his holding for a combination of cash and shares.

This accounts for 25.6% of Gamesys’ issued ordinary share capital at the close of business. If these shareholders are the only ones to take up the share exchange offer, the maximum cash consideration to be paid by Bally’s would be £1.6bn.

"We believe that this combination will mark a transformational step in our journey to become a leading integrated, omni-channel gaming company with a B2B2C business,” Bally’s chairman Soo Kim said. "We think that Gamesys' proven technology platform alongside its highly respected and experienced management team, combined with the US market access that Bally's provides, should allow the combined group to capitalise on the significant growth opportunities in the US sports betting and online markets.

“We are truly excited about the opportunities that this combination would offer and the enhanced and comprehensive experience and product offering that it would enable us to offer our customers.”

Gamesys chief executive Lee Fenton, who will become group CEO once the deal completes, added: ”After more than two decades honing our craft in online gaming, this combination would give all at Gamesys an opportunity to fully leverage the technology, product and know-how we have developed in what will become the largest regulated online gambling market in the world.

“I believe the highly complementary nature of our companies and the common history of being highly cash generative will leave us uniquely positioned for success.”

As outlined in the Rule 2.4 announcement, Bally’s believes the deal would allow it to significantly increase its market share of the expanding US betting and igaming market, which analysts suggests could be worth up to $45bn at maturity.

Gamesys’ existing platform would benefit from market access to key states via Bally’s brick-and-mortar estate. Bally’s, meanwhile, would benefit from Gamesys’ proven technology platform, expertise and highly-respected management team, the business’ boards said. As a result, there is not expected to be any sort of material change in Gamesys’ overall headcount, employment conditions or core duties. However, as a result of the business being de-listed from the London Stock Exchange, certain support functions in his head office may not be required going forward, Bally’s noted.

The combined business’ growth trajectory would be aided by the pending acquisition of sportsbook platform Bet.Works, which is expected to close in the first half of the year, and its partnership with Sinclair Broadcast Group.

Its portfolio would be one of the broadest in the market, incorporating land-based gaming, online ports betting, online casino, poker, bingo, daily fantasy sports (via Monkey Knife Fight ) and free-to-play games (through its SportCaller deal ).

This is expected the highly cash flow generative, enabling it to pursue further growth opportunities, either through reinvestment in its products, or additional M&A opportunities.

With Lee Fenton becoming group chief executive, Gamesys’ chief operating officer Robeson Reeves and non-executive director Jim Ryan will join the Bally’s board. Current CEO George Papanier will remain in charge of the brick-and-mortar business, and retain his seat on the board.

To finance the cash portion of the deal, Premier Entertainment has entered into a commitment letter and interim facilities agreement (IFA) for a bridge loan. This will be provided by Deutsche Bank’s London Branch, Goldman Sachs and Barclays Bank.

In connection with the IFA, Gaming and Leisure Properties Incorporated, the real estate investment trust spun off from Penn National Gaming in 2013, has committed to purchase Bally’s shares worth $500m.

However the operator will also look to reduce the sum borrowed through an offering common stock and tangible equity units for a total price to the public of approximately $850m. This will be carried out before the deal closes.

The transaction remains subject to approval from Gamesys shareholders, at a court meeting and general meeting. It must be approved by investors holding at least 75% of the business’ stock  at each.

Shareholders that own 33.3% of Gamesys’ issued ordinary share capital, including the operator’s directors, have announced they will support the combination.

The issuance of new Bally’s shares to fulfil the share portion of the deal will also require approval from its shareholders, with the board of directors to unanimously recommend they support these proposals. To date, holders of 2.5% of the business’ stock have committed to voting in favour.

Gamesys chairman Neil Goulden said the combination would “give unique optionality” to its shareholders.

“The recommended cash offer, including the Gamesys FY20 dividend, provides a 41.2% premium to the Gamesys share price at the time of the original proposal from Bally's and is at a significant premium to the all-time high Gamesys share price prior to the 2.4 announcement,” he explained.

“However, should Gamesys shareholders wish to invest in a business with a strong foothold in the high-growth US gambling market combined with established markets in the UK and Japan, they can elect for part or all of their holding to be converted into Bally's shares.”