PlayAGS Plunges After Ending Merger Talks with Inspired Entertainment

PlayAGS (NYSE:AGS) ranked as Thursday’s worst-performing gaming stock , tumbling 20.76% after the company announced merger discussions with Inspired Entertainment (NASDAQ:INSE) ended.

Last month, Inspired Entertainment offered $10 a share in cash for AGS, valuing the target at $370 million. At that time, the Las Vegas-based slot machine maker confirmed it was in talks with a third party regarding a takeover but cautioned investors a transaction may not materialize. AGS was right to point that out.

As previously disclosed, on August 12, 2022, PlayAGS, Inc. indicated that it was in preliminary discussions with a third party that Reuters had identified as making an offer to acquire the Company. Such discussions have concluded without a transaction,” according to a Form 8-K filing with the Securities and Exchange Commission (SEC).

The gaming device maker said it won’t be making further comments on the now-dissolved acquisition talks, and it won’t deliver public remarks on potential transactions in the future unless required to do so by regulators.

AGS, Inspired Going it Alone…for Now

Immediately following news of Inspired courting AGS, analysts speculated that a deal may not reach the finish line without the suitor raising its bid.

As of the end of the second quarter, the private equity giant owned 8.2 million shares of the gaming equipment maker or 22.08% of its shares outstanding. Analysts speculated Apollo might not be enthusiastic about signing off on a deal at just $10 a share. Going forward, it’s possible enthusiasm for AGS as a standalone company resumes in the investment community.

“For AGS, we believe there was recent buying activity in anticipation of a potential sale of the company above $10 per share. After near-term arb buyers ‘shake out,’ the AGS story mildly improves as potential value previously unrecognized by investors was highlighted in the overall period of acquisition discussion, in our view,” wrote B. Riley analyst David Bain in a note to clients today.

Still Hope for AGS Takeover

While AGS is currently mum on whether or not it’s holding takeover talks with other parties, other suitors may realize the door is open to initiate discussions at the very least.

“We believe some M&A premium should remain given the discussions affirm AGS is entertaining offers. For INSE, the merger discussions affirm that management is legitimately interested in transformational acquisitions,” said Roth Capital analyst Edward Engel in a note to clients.

He notes Inspired’s offer highlights the value in AGS, which is trading at deeply discounted levels relative to its peer group.

“With INSE offering $10 per share, we believe this affirms value for AGS trading near $6. Meanwhile, negotiations reveal that AGS is entertaining offers, and we believe other potential buyers might be interested as well,” added the analyst. “The key concern among investors was INSE’s pro forma leverage, but this would be less relevant to a larger buyer.”