Italy’s GTECH has entered into a definitive merger agreement with US gaming supplier International Game Technology (IGT) in a $6.4bn deal which will create a new global gaming and lottery giant.

The transaction, rumours of which were first revealed last month, will create the world's leading end-to-end gaming company, with the $6.4bn price comprising $4.7bn in cash and stock and the assumption of $1.7bn in net debt.

It will see IGT's game library and manufacturing and operating capabilities combine with GTECH's gaming operations, lottery technology and services.  

“This transaction is transformational for our business,” said GTECH CEO 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 be uniquely positioned to take advantage of the ongoing convergence across global gaming market segments.”

Sala said that GTECH’s expertise across these segments and “greater ability” to invest in research and development will improve player experiences and benefit the company’s government and business clients.
 
“The transaction will significantly enhance our cash flow and financial strength, and provide clear and achievable cost and revenue synergies,” he added.

The new company combines end-to-end lottery solutions, including operation and management capabilities; iGaming solutions; video lottery terminals (VLTs); gaming content across mobile, retail and gaming machines; manufacturing and operation of gaming machines an central systems for casinos; and social gaming.

The combined entity’s interactive solutions will comprise of IGT’s social gaming business DoubleDown Interactive and its real-money gaming content supply business, together with GTECH’s gaming platform (including poker, bingo, casino and sports betting) as well as its operating brands in Italy under Lotttomatica.it and Totosi.it. GTECH also provides interactive and mobile solutions to its lottery clients across the world.

GTECH said that the merger drives competitive scale across multiple businesses, geographies and product lines and is expected to achieve over $280m in synergies by the third year following closing of the transaction.

Under the terms of the transaction, IGT and GTECH will combine under a newly formed holding company, NewCo, which will have its corporate headquarters in the UK and maintain operating headquarters in each of Las Vegas, Providence and Rome.  

NewCo will apply for listing solely on the New York Stock Exchange (NYSE), with IGT and GTECH shares both ceasing trading on the NYSE and Borsa Italiana exchanges respectively.  It is expected that NewCo will continue under the name GTECH plc.

De Agostini S.p.A and its subsidiary DeA Partecipazioni S.p.A, which own approximately 59 per cent of GTECH's outstanding shares, have entered into a support agreement with IGT pursuant to which they have agreed to vote in favour of the transaction.

As a result, it is anticipated that existing IGT and GTECH shareholders will own approximately 20 per cent and 80 per cent respectively of NewCo ordinary shares, with De Agostini expected to hold approximately 47 per cent of NewCo's outstanding ordinary shares.

IGT shareholders will receive an aggregate value of $18.25 per IGT share in a combination of $13.69 in cash plus 0.1819 ordinary shares of NewCo for each share of IGT common stock. GTECH shareholders will exchange each of their existing GTECH shares for one newly issued NewCo share.  

IGT CEO Patti Hart said the company was “extremely pleased” to reach an agreement with GTECH as a result of its exploration of strategic alternatives to increase shareholder value.  

“This outstanding combination of two global leaders redefines the future of the gaming industry,” said Hart. “Together we are uniquely positioned to provide the industry's broadest and most innovative portfolio of best-in-class products, solutions and services.

“This strategic agreement positions us to further transform the industry while providing meaningful benefit and value to our customers, our employees and our shareholders.”

The transaction has been unanimously approved by the boards of directors of both companies and represents a 46 per cent premium to the closing price of IGT's common stock on June 6th, the last trading day prior to initial reports that IGT was exploring a potential sale.

The combined entity would generate over $6bn in revenue and over $2bn in EBITDA based on the year ended March 31st.

Of the total revenue last year, 51 per cent was generated by gaming equipment, 35 per cent by lotteries, 8 per cent from interactive, and the remaining 6 per cent from other operations. The US and Canada accounts for 46 per cent of the total, followed by Italy with 36 per cent and international markets the remaining 18 per cent.

The transaction is expected to be completed in the first or second quarter of 2015, and is subject to the receipt of required antitrust and gaming clearances, approval by the IGT and GTECH shareholders, and other customary conditions.  

GTECH expects to finance the cash portion of the consideration through a combination of cash on hand and new financing. The company has received binding commitments totalling $10.7bn from Credit Suisse, Barclays and Citigroup to finance the transaction, including refinancing certain existing indebtedness.

Upon the closing of the transaction, the initial board of directors of NewCo will be comprised of 13 directors including GTECH CEO Marco Sala, who will serve as CEO of NewCo; five directors to be appointed by IGT from its existing board of directors, including chairman Phil Satre, who will serve as chairman of NewCo, IGT CEO Patti Hart, who will serve as a vice-chairman, and seven directors to be appointed by GTECH at least four of whom will be independent and one of whom will serve as a vice-chairman.

Shares in GTECH S.p.A (Co. Data) (MIB:GTK) are currently trading at 18.44 per share in Milan this morning, while shares in International Game Technology (Co. Data) (NYSE:IGT) closed at $15.50 per share in New York yesterday.

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