Casino gambling equipment maker Bally Technologies (BYI) is looking to Asia with its $1.3 billion, $23.25 a share buyout offer for card shuffle machine maker SHFL Entertainment (SHFL).
Investors think it could be a winning pair.
SHFL gapped up 22% to a six-year high of 22.81 in huge volume Tuesday. Bally climbed 7% to 65.13, hitting a record high.
SHFL has a strong footprint overseas, and the merger will help Bally expand in China, Singapore and other parts of Asia, the hot spot for gambling.
Macau, the specially designated casino region on China's southern coast, is the world's largest and fastest-growing gambling destination.
Bally has lined up financing for the cash deal, which it expects to close by Q2 2014.
Stacking The Deck
It forecast 2014 earnings per share of $3.70 to $4.05, excluding acquisition costs. The midpoint is above the consensus of 14 analysts polled by Thomson Reuters for $3.85.
"This acquisition represents the next logical step for our company, and a game changer for our industry," Bally CEO Ramesh Srinivasan told analysts on a conference call.
He said the companies have complementary geographic markets, and the merger will "immediately create one of the world's largest end-to-end gaming technology innovators.
Bally sells and rents a variety of gambling equipment to casino companies such as Las Vegas Sands (LVS), the world's largest casino resort operator, MGM Resorts (MGM) and Wynn Resorts (WYNN).
It also sells to Asian casinos, including Melco Crown Entertainment (MPEL) and Galaxy Macau, which vie with Sands, MGM and Wynn in Macau.
Todd Jordan, managing director at stock research firm Hedgeye Risk Management, was on SHFL's board in 2006-07 and still holds shares. He said the deal makes sense: "More than half of SHFL's business is overseas and they're strong in Asia. Only 16% of Bally's sales are overseas.
He doesn't see any regulatory hurdles and said there may not be competing offers.
Sterne Agee analyst David Bain also likes the combination.
"For Bally it's accretive to earnings to the tune of 40 cents a share by 2015," he said.
In May, Scientific Games (SGMS) completed its buy of slot machine maker WMS Industries for $1.5 billion.
Bain says the industry merger wave may not be over.
"There is consolidation in this space, but it seems to occur sporadically. We're in one of those periods now," he said.
Among other casino equipment makers, Multimedia Games (MGAM) and International Game Technology (IGT) rose 3%.