Standard General Bally’s Bid Could Be Floor, Not Ceiling, Say Analysts

Posted on: January 26, 2022, 10:32h. 

Last updated on: January 26, 2022, 12:26h.

Bally’s (NYSE:BALY) stock is trading higher Wednesday, following through on an epic Tuesday rally sparked by a $38 per share takeover offer from Standard General. Some analysts believe the bid could represent an effort to put a floor under the previously faltering shares.

Bally's offer
Bally’s on the Atlantic City Boardwalk. The operator has a takeover offer on the table, but analysts have questions about it. (Image: Getty Images)

At $38 a share, Standard General values the Rhode Island-based casino operator at a 30 percent premium to where its shares closed on Monday, Jan. 24, or about $2 billion. Standard General is a hedge fund controlled by Soo Kim, and owns more than 20 percent of Bally’s shares, making it the largest investor. Kim is also a board member of the gaming company.

Even with that hefty premium, Bally’s stock is still badly battered, residing almost 52 percent below its 52-week high. That could be a sign Standard General is acting opportunistically with its takeover bid.

In a note to clients today, Macquarie analyst Jordan Bender says the $38 offer price “could act as a starting point for Standard General, with the expectation for a potential takeout price to move higher.”

Bender reiterates a “buy” rating on Bally’s, with a $58 price target, noting the operator’s land-based operations alone are worth $42 a share — a more than 10 percent premium to Standard General’s offer for the whole company.

How Gamesys Factors Into Equation

Last October, Bally’s wrapped the $2.7 billion acquisition of the UK online gaming company Gamesys — the buyer’s biggest deal to date.

While Bally’s offered cash for Gamesys, there was an option for the latter to receive shares in the buyer. When the deal closed, Bally’s stock was trading over $50. Today, even with the benefit of the Standard General offer, the shares reside below $37, indicating Gamesys investors that are now Bally’s shareholders may not be enthusiastic about the hedge fund’s offer.

“Recall the 26 percent GYS insider ownership opted to take BALY equity in the deal, signaling their conviction in the strategic rationale,” says Stifel analyst Jefferey Stantial. “At a $38/share takeout price for BALY, this implies legacy GYS shareholders are receiving ~$13/share in cash per share of GYS previously owned, whereas the cash offer for GYS was set at ~$26/share (at prior USD:GBP). We find it hard to imagine legacy GYS shareholders still in the stock will find these terms attractive, which is important, given the deal requires the majority of non-Standard General owned shares to vote in favor.”

On a related note, it’s also notable that Lee Fenton is Bally’s chief executive officer. He previously held that job at Gamesys. Like Standard General’s Kim, Fenton is also a Bally’s director.

Offer Is Positive, But Deal Might Not Happen

The Standard General bid is clearly a positive for Bally’s stock. But it remains to be seen if the company and other investors are warm to the offer.

Stifel’s Stantial expresses “hesitancy” regarding the proposed price and approval probability at such terms. He maintains a $70 price target on Bally’s.

“While it remains to be seen if they would entertain nudging the price higher, if need be, we are positive even if the deal ultimately falls through, as we expect, this should drive some much-needed price discovery for a stock that has been overly punished, in our view, in the recent macro-driven selloff,” said the analyst.