Gaming equipment giant International Game Technology may be taking a page out of the playbook of rival Light & Wonder.
The Italy-based company, which maintains a small corporate office presence in Las Vegas and a manufacturing facility in Reno, said last week it was “evaluating strategic alternatives” for its global gaming and digital operations business segments.
In a statement, company executives said the range of options included a sale, merger or spinoff of the divisions, as well as further investment.
The announcement came three days after IGT said it reached a new 10-year licensing agreement with Sony Pictures Television for the exclusive rights to use the Wheel of Fortune brand across the company’s casino, lottery and social gaming products through the end of 2034.
The launch of the Wheel of Fortune slot machine changed the trajectory of then-Nevada-centric IGT when the company launched the game — just as casino legalization began rolling across the U.S. in the 1990s. IGT created some 300 versions of the game, which has paid out more than $3.5 billion in jackpots since 1996, according to a company statement.
So why would IGT be considering a possible sale of the divisions?
The investment community speculated that last year’s corporate moves by Las Vegas-based Light & Wonder — selling its lottery division for $6 billion and its sports betting business for $800 million — may have triggered IGT’s board into action.
IGT generates more than 64 percent of its revenue from its worldwide lottery business, which makes sense given that in 2015, lottery giant GTECH acquired casino-centric IGT in a $6.4 billion buyout with the combined company taking on the IGT name. With the 2018 expansion of legal sports betting in the U.S., IGT created a digital gaming division to capitalize on the business opportunity.
The lottery business, however, is what drives the company.
Truist Securities gaming analyst Barry Jonas wrote in a research note last week that IGT previously said it was exploring a spinoff of its digital division but might have seen the potential value of including the gaming division after Light & Wonder, formerly known as Scientific Games, completed its deals.
“The company has always extolled the synergies of its three segments, though this is something Light & Wonder got over to extract value,” Jonas wrote.
Even though sales prices may have declined since last year’s deal, Jonas wrote there is “a wide range of scenarios here with a sizable potential for value creation.”
Analysts said one of the reasons IGT may be looking at some type of corporate restructuring is its stock price. The company’s shares were trading at $27 at the time of the announcement and jumped up to $30 by the end of the week amid speculation about pending deals.
“We have argued that an ‘unpacked’ IGT should be worth considerably more than where it trades,” B Riley Securities gaming analyst David Bain wrote in a research note. He suggested IGT’s “iconic” gaming business “offers a unique opportunity within the global gaming industry.”
However, Bain said there is a “relatively limited field of potential buyers.”
IGT Chairman Marco Sala, who was the CEO of GTECH at the time of the IGT purchase in 2015 and became CEO of the newly combined company, cited the company’s stock price in the statement announcing the plans.
"We believe the intrinsic value of IGT's market-leading businesses and diversified cash flow profile is not currently reflected in our stock price and the timing is right to assess opportunities that may enhance value for IGT's shareholders," Sala said.
Jefferies gaming analyst David Katz told investors the initial idea going back to the 2015 merger between GTECH and IGT was of the cross-value potential between the lottery business and casino gaming. But it never materialized, and now IGT now believes the value is operating businesses separately.
“The larger questions are who would be interested and what they might pay,” Katz wrote in a research note.
He said the broader global gaming market could have international players seeking a U.S. presence in slot machines while the digital gaming division would more likely draw an American-based company.