Standard General Offers $15 a Share For Bally’s, Down More Than 50% From 2022

Posted on: March 11, 2024, 02:13h. 

Last updated on: March 12, 2024, 11:38h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Soo Kim’s Standard General, the hedge fund that controls 23% of Bally’s (NYSE: BALY) equity, offered to acquire the remainder of the regional casino operator for $15 a share, valuing the target at a 41% premium to the March 8 close.

Bally's
Standard General founder Soo Kim. His hedge fund offered $15 a share to acquire Bally’s. (Image: Meet AC/Casino.org)

While the offer sent shares of Bally’s higher by 26.6% in late trading on volume that’s more than 22 times the daily average, it’s a fraction of the $38 per share the hedge fund offered for Bally’s January 2022. That offer valued the casino operator at $2 billion, but was ultimately rejected.

Standard General expects that the Board of Directors of the Company will appoint a special committee of independent directors to consider its proposal and make a recommendation to the Board of Directors. Standard General will not move forward with the transaction unless it is approved by such a special committee,” according to a 13D filing with the Securities and Exchange Commission (SEC) made by the money manager.

For the deal to move forward, a majority of Bally’s shareholders exclusive of Standard General must vote in favor of it. In a letter to Bally’s board of directors, Kim cautioned that the takeover offer is only “an expression of interest,” and that the asset manager can withdraw the bid at any time.

Interesting Timing for Standard General Bid

Standard General’s new offer for Bally’s arrived a year after shares of the Rhode Island-based company traded at around $20, and as the operator is dealing with procuring financing for a Chicago casino hotel, its largest project to date.

As noted by Stifel analyst Jeffrey Stantial, Bally’s is contending with other headwinds. Those include softness in some regional gaming markets, wage and cost inflation, regulatory issues in the UK, losses in its North American digital business, and harsh rhetoric against online gaming in Japan.

“Based on management’s recent commentary, several of these should improve/resolve in the coming quarters (more specifically, Japan & Chicago financing), which we think poses a potential near-term path back to $15/share, with upside thereafter driven by execution on the long-term thesis,” Stantial wrote in a note to clients. “Put another way, the $15/share offer values BALY at ~7.5x/8.5x our 2024/25E adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) vs. peers currently trading 7.0-10.0x/6.0-9.5x, again suggesting the special committee may deem the offer too low.”

While highlighting the aforementioned $38 per share offer delivered by Standard General 26 months ago, Stantial added the Bally’s committee that reviews the newest takeover proposal is likely to focus on long-term value over short-term headwinds.

Standard General Could Be Eyeing Bally’s Real Estate

Standard General could be eyeing Bally’s property holdings as a financing lever, particularly to raise the capital needed to solidify the Chicago casino, which carries a price tag of $1.1 billion.

The gaming company has previously sold some real estate to raise cash, but it remains in control of the bulk of the property on which its gaming venues reside. That doesn’t mean it will accept the hedge fund’s fresh takeover bid. Nor does it mean another buyer is waiting in the wings to make a higher offer. Stantial noted the latter point, saying it’s hard to envision another logical suitor.

“Additionally, the proposal is vague on financing plans, with Standard General likely again looking to BALY’s owned real estate as a potential source of financing,” concluded the analyst. “To be clear, we think there is real intent to own from Standard General, we just see it unlikely a $15/share offer is ultimately accepted while it remains to be seen if Standard General would entertain nudging the offer price higher (historical precedent would suggest no).”