Scientific Games Pops 15% After Caledonia, Investors Snap Up 34.9% Stake

Shares in Scientific Games are surging 15% in Monday’s pre-market trading session after a group of institutional investors, including Caledonia reached an agreement to snap up a 34.9% stake in the company at $28 per share, which represents a 48% premium to Friday’s close.

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Shares are surging to $21.77 in pre-market trading after closing at $18.97 on Friday. Scientific Games (SGMS) said that the stake will be acquired from billionaire Ronald Perelman’s company MacAndrews & Forbes. The transaction between the investing parties and MacAndrews & Forbes will be executed in multiple tranches after which no investor is expected to beneficially own more than 9.9% of the outstanding shares of Scientific Games.

The first tranche sale will be completed today, and the remainder of the transaction is expected to be fully completed over the next several weeks.

“Scientific Games is well-positioned for future success given our industry leading portfolio of products and technologies, loyal customer base and talented leadership team,” Scientific Games CEO Barry Cottle said. “We are pleased to have the support of our refreshed Board and new investor base as we continue to execute on our strategy to drive meaningful long-term growth and shareholder value creation.”

As a result of the deal, the company will reshuffle its Board of Directors. Former Aristocrat CEO Jamie Odell, along with former Aristocrat CFO Toni Korsanos, will join the as Executive Chair and Executive Vice Chair, respectively. In addition, the majority of independent directors sitting on the board will have a deep and diverse mix of gaming industry, financial, strategic and operational experience, the company announced. The changes to the Scientific Games Board become effective upon the first tranche sale.

Shares in Scientific Games have plunged 29% so far this year, with analysts sidelined on the stock for now. The Hold analyst consensus is divided between 2 Holds and 1 Sell versus 2 Buys. Meanwhile, the $20.20 average analyst price target implies 6.5% upside potential over the coming year.

Following the announcement Jefferies analyst David Katz raised the stock’s price target to $20 from $17. Last month, Katz had said that the marketing of MacAndrews & Forbes’ stake could end up with a variety of results and could have implications for the company’s ownership in SciPlay (SCPL).

Katz noted that alternative corporate strategies and structures could potentially “present opportunities for value enhancement,” while reiterating a Hold rating on the stock until there is more clarity. (See SGMS stock analysis on TipRanks)