Two super heavyweights of the gaming industry are to merge in a $4.7 billion deal, as Italian company GTECH has announced its takeover of Las Vegas-based IGT this week, together forming the world’s biggest end-to-end gaming company.
The two giants will combine to create a new holding company based in the UK, with corporate headquarters in London and operating headquarters in Las Vegas, Providence, Rhode Island and Rome. It will, however, be listed on the New York Stock Exchange. GTECH will also assume approximately $1.75 billion in existing IGT net debt, making the total purchase price approximately $6.4 billion.
GTECH is the largest operator of lotteries in the world, owning 63 percent of the global lottery market. It operates in all continents and across 52 countries, employing over 8,500 people. In 2012, it had revenues of €3.08 billion ($5.14 billion). It also owns the iGaming software developer Wagerworks.
IGT, meanwhile, is the world’s largest manufacturer of gaming equipment, producing roughly half of all gaming machines in the United States. It has offices in 11 countries, but has recently reported a decline in earnings and in March announced that it would be forced to lay off seven percent of its global workforce in order to save costs.
Deal “Defines the Future of Gaming Entertainment”
The two companies say that the deal will allow them to capitalize on opportunities across global gaming market and that the new group would be expected to reap revenues of over $6 billion with over $2 billion in profits.
“We are extremely pleased to reach a definitive merger agreement with GTECH as a result of our exploration of strategic alternatives to maximize shareholder value,” said IGT CEO Patti Hart. “This outstanding combination of two global leaders truly defines the future of gaming entertainment. Together we are uniquely positioned to provide the industry’s broadest and most innovative portfolio of best-in-class products, solutions and services.”
For GTECH, the acquisition represents its arrival on the scene as a major global player in the casino industry and will also allow it to build on its presence in the US gaming market where it already operates lotteries. GTECH is facing far slower growth at home in the Italian market; according to Reuters, total net spending for gaming in Italy fell 6.6 percent last year, while it rose 6.7 percent in the United States.
UK Corporate Tax Breaks
Relocation to the UK, meanwhile, offers a slightly more favorable tax regime. According to The Wall Street Journal, the two companies currently have a tax rate in the high 30 percent range which would fall to the mid-30s in the UK. The report notes that this is part of a trend in which a large company, usually American, will acquire an overseas company in order to create a new company that can relocate to a country where it will pay less corporate tax, although in this case the reverse is true.
“This transaction is transformational for our business.” said Chief Executive Officer of GTECH Marco Sala. “With limited overlap in products and customers, the combined company will enjoy leading positions across all segments of the gaming landscape. It will increase our global scale and with a full suite of offerings and robust customer relationships across the client spectrum, the new company will have unparalleled capabilities to address the ongoing convergence across global gaming segments.
“Our expertise across these segments and greater ability to invest in R&D will improve player experiences and benefit our government and business clients. The transaction will significantly enhance our cash flow and financial strength, and provide clear and achievable cost and revenue synergies,” Sala added.