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Scientific Games Sells Sportech Stake

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Scientific Games Corporation (NASD:SGMS) recently announced the sale of around 39,742,179 Sportech plc shares, generating gross cash proceeds of around GBP 27.8 million. The shares were sold in accordance with Regulation S of the United States Securities Act of 1933 on Jan 14, 2014.

Scientific Games is expected to fund its expansion program with the help of the proceeds from this stake sale. Moreover, the company is expected to use the proceeds to increase investments on product development, which will help it to remain competitive over the long term.

The domestic lottery industry is undergoing a transition, which involves increasing involvement of private vendors in state lottery management, higher prize payouts and introduction of tiered pricing for national jackpot games to add impetus to the sagging U.S. lottery industry. We believe Scientific Games is well positioned to benefit from this transition, going forward.

However, these measures will take some time to generate results. Intensifying competition from the likes of International Game Technology (NYSE:IGT), GTech S.P.A. (OTC:GTKYY) and Bally Technologies Inc. (NYSE:BYI) coupled with sluggish macroeconomic condition in important international markets are the primary headwinds for Scientific Games, going forward.

Nevertheless, we believe that the company’s diversified product offerings, international development activities, recurring revenue business model and strong growth from the Internet-based business will drive the stock over the long term.

Moreover, Scientific Games’ acquisition of WMS Industries will likely diversify the former’s product portfolio and expand its global footprint. The deal also diversifies Scientific Games’ revenue stream from lottery-based products and cross sell WMS Industries’ interactive gaming products and casino-based games.

Currently, Scientific Games has a Zacks Rank #3 (Hold).

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