AGS Confirms Receipt of Takeover Offer, Ongoing Talks

Posted on: August 12, 2022, 10:34h. 

Last updated on: August 14, 2022, 09:37h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Slot machine maker AGS (NYSE:AGS) confirmed it received a $10 a share takeover offer, which explains the stock’s 25.25% jump today, adding the bid wasn’t accepted.

In a Form 8-K filing with the Securities and Exchange Commission (SEC), AGS doesn’t identify from what company it received the acquisition proposal. But it’s widely believed rival Inspired Entertainment (NASDAQ:INSE) is the suitor in question.

The Company’s Board of Directors and management team are committed to acting in the best interests of all shareholders. Consistent with its fiduciary duties and in consultation with the Company’s financial and legal advisors, the Company’s Board of Directors will carefully review any proposal received by the Company to determine the course of action that it believes is in the best interest of the Company and its shareholders,” according to the AGS regulatory document.

The gaming device manufacturer adds it is not company policy to comment on market speculation, and that no further updates may be forthcoming unless required by regulators.

What’s Next for AGS

At $10 a share in cash, the prospective buyer is valuing at $4, or 66% above AGS’s Aug. 11 closing price. Even with the massive, high volume rally in the name today, the shares need to gain 33.1% to hit the offer price.

“This proposal was not accepted by the Company, although the Company remains in preliminary discussions with such third party,” said AGS in the SEC filing.

While Inspired Entertainment didn’t comment on the matter and AGS didn’t identify the company by name, the former is seen as a credible suitor. That’s owing to its firming balance sheet and previous comments that it is evaluating consolidation opportunities.

Is $10 Enough? Maybe Not.

Simple math confirms a $10 per share offer for a company that traded at $6 just one day ago is compelling. But things aren’t that simple when it comes to AGS. The stock traded at $32 in 2018 and its 52-week is $10.45.

Additionally, analysts are mostly constructive on AGS, and the average price target on the name — not necessarily a factor in takeover talks — is $11.44. Indeed, the company has traits that are likely to be attractive to suitors.

Casino visitation trends are strong across the US, compelling operators to extend the slot upgrade cycle, owing to the high margins offered by gaming machines. Specific to AGS, the company is adding market share and derives 70% of its sales from recurring revenue streams.

It’s not yet clear that if AGS rejects the $10 a share bid, a higher offer will materialize.