Bally’s Should Accept Standard General Takeover, but Probably Won’t, Says Analyst

Posted on: March 13, 2024, 10:08h. 

Last updated on: March 13, 2024, 01:08h.

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

Bally’s (NYSE: BALY) should accept the $15 per share acquisition bid floated Monday by Standard General, but the regional casino operator is unlikely to do so, according to an analyst.

Bally's
Bally’s on the Atlantic City Boardwalk. The operator should accept a new takeover offer, but probably won’t, says an analyst. (Image: Bloomberg)

That’s the view of Wells Fargo analyst Daniel Politzer. He commented on the proposed acquisition in a Monday note to clients in which he reiterated an “underperform” rating on Bally’s, with a $9 price target. That is implying significant downside from current levels and the $15 a share offer.

We think BALY’s should take this deal, but it’s hard to imagine they will,” observed Politzer.

Standard General, the hedge fund that controls about 23% of Bally’s outstanding equity, attempted to acquire the gaming company in January 2022, offering $38 a share at that time. That bid, which valued the target at $2 billion, was turned away.

New Offer for Bally’s Credible, Says Politzer

While it’s reasonable to assume that a company that rejected a $38 per share acquisition offer will do the same with a $15 a share bid, Politzer noted Standard General’s new proposal to take Bally’s private is credible.

Politzer said the hedge fund’s acquisition proposal is a slight premium to the average 7.5x 2024 enterprise value/earnings. That’s before the interest, taxes, depreciation, and amortization (EV/EBITDA) ratio seen in the regional gaming space. Additionally, other analysts have speculated that it’s unlikely another suitor will emerge for Bally’s.

“BALY is at an interesting juncture: it could make sense to go private now, get Chicago financed/built, delever via sale-leasebacks, and get North America Interactive on track, then return to public markets in several years w/ higher EBITDA and an improved balance sheet,” added Politzer.

On Tuesday, Bally’s announced the formation of a special committee to evaluate the new takeover bid, but cautioned investors that isn’t an indication of acceptance of the offer. No timeline was revealed regarding when the committee could announce a decision.

Bally’s Different Today Than in 2022

As Truist Securities analyst Barry Jonas pointed out in a Monday report to clients, “The prospects of the company (Bally’s) have changed meaningfully since Standard General’s January 2022 offer.”

Those alterations include the operator’s inability to capitalize on iGaming and online sports wagering growth in North America, the Chicago casino project, and the upcoming demolition of Tropicana Las Vegas — a site that could eventually be turned into a Major League Baseball (MLB) stadium.

It’s not clear how or if those factors play into Standard General’s thinking regarding a takeover of Bally’s. But it’s clear the gaming company needs another $800 million to complete its Chicago project. Likewise, the operator could raise the funds by selling the operating rights to Tropicana. If and when another casino resort appears on that property is up in the air until it becomes certain that the Oakland Athletics are moving to Las Vegas.