Las Vegas-based slot machine manufacturer Scientific Games is planning to divest its lottery management and sports betting business. It is part of a strategy to reduce the weight of its debt burden and focus on growing its digital offering.
Scientific Games Corporation, the famed slot machine manufacturer that rose to prominence via a streak of strategic acquisitions, has disclosed its intention to offload its lottery management and sports betting units. The Sin City-based gaming company announced on Tuesday that the move was part of its plan to restructure itself and de-leverage its balance sheet.
In the announcement, the company indicated that it is currently evaluating the most suitable options to divest the two businesses. The two units could be offloaded via an IPO (initial public offering), a merger with a SPAC (special purpose acquisition company), outright sale, or even a strategic business combination with another entity. However, the Las Vegas-based gaming giant has not given any clear information about a timeline within which the business divestitures will be carried out.
After the announcement, Jamie Odel, the SG Executive Chairperson, said:
Quote“When I joined the Board in September 2020, I told stakeholders that we were focused on rapidly de-leveraging the balance sheet, unlocking the value of the Company’s products and technologies, and creating a flexible, nimble company positioned to deliver above-market returns to investors. Today, we have announced major initiatives aimed at achieving each of these key objectives, recognizing significant value in each of the businesses and positioning the Company for sustainable growth, all as a result of the dedicated work of our teams.”
Barry Cottle, the company President, and Chief Executive Officer, also chimed in to say:
Quote“Today’s announcement reflects key steps to optimize our portfolio and strengthen our balance sheet by significantly de-levering while also targeting investments in our largest growth opportunities. These steps will accelerate our path to become a content-led growth company focused on leading in both land-based and digital markets. Our company will be positioned to build great games that define the future of gaming, supported by platforms that power the best operators in the world.”
SG CEO Cottle added that this move would allow the company to venture into a more robust future through strategic expansions and partnerships. He said:
Quote“We believe these steps will enable us to capitalize on the high growth potential of each of our businesses, including their expanding digital content offerings and platforms, unlocking value for shareholders, customers, and employees. Each of our businesses will be better positioned to partner with their respective customers and to deliver long-term growth and profitability.”
Scientific Games’ Debt Heavy Portfolio Needed Reworking
It’s worth pointing out that, like many land-based gaming companies, the 2020 Coronavirus crisis landed a hefty blow on Scientific Games. The slot machine manufacturer was particularly vulnerable since it was burdened by heavy debt and a weak balance sheet. Consequently, its stock ended up tumbling from about $30 before the Coronavirus outbreak to as low as just over $3 by March 2020. So, the fact that its share price is currently sitting at $80+ is quite impressive, given that its liabilities stand at $9.43 billion, far beyond its $7.48 billion market capitalization value.
Following the divestment announcement, Scientific Games stock on the NASDAQ climbed by nearly 6% by noon trading. And since the beginning of 2021, SG’s stock has surged by 87%, with over 5% growth in the last month. Furthermore, within the past year, the company’s share price has surged by a whopping 436%.
It appears that the Scientific Games team wants to strike while the iron is still hot via this new divestment strategy. By offloading the said businesses, SG is looking to unlock more resources that will be channeled into expanding its digital offerings and effectively bring more value to shareholders, clients, and staffers. In his briefing on Tuesday, Cottle, the Chief Executive, further added that:
Quote“At the conclusion of this process, the new company will consist of leading Gaming, iGaming and SciPlay businesses, all of which have great momentum and will collectively deliver great value. We will capitalize on the increasing convergence of these businesses, as players look to play their favorite games wherever and whenever they want to play. As the leading cross-platform global game company, we are uniquely positioned to take advantage of the incredible industry transition that is underway. Given this significant opportunity, we are targeting our digital businesses to be comparable in size to the land-based gaming business within three years. I’m confident that, with these steps, we are well-positioned for future growth prospects.”
SciPlay is a booming social casino developer, previously a Social gaming division under SG before it broke off to become an independent company. Scientific Games is currently the majority shareholder of the SciPlay entity, with an 83% stake in the business. Since January, SciPlay’s stock has risen by 36%, making it a valuable asset for Scientific Games, which alongside SG’s lottery segment and digital gaming branch, helped offset the gaming machines dwindling revenue for Q1 2021. So, while we can’t say for sure where Scientific Games is heading with its divestment agenda, the company’s plan to boost its digital offering seems to be a step in the right direction.
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