SciPlay Soars After Activist Investor Urges Sale to Light & Wonder

Posted on: October 4, 2022, 02:00h. 

Last updated on: October 4, 2022, 02:26h.

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

Shares of SciPlay (NASDAQ: SCPL) surged 5.68% in Monday’s extended trading session. That’s after activist investor Engine Capital pushed the mobile games developer to consider selling itself to Light & Wonder (NASDAQ: LNW).

Engine Capital
Engine Capital Managing Partner Arnaud Ajdler in an interview. His firm is pressing SciPlay to sell itself to Light & Wonder. (Image: Yahoo Finance)

Slot machine maker Light & Wonder, formerly known as Scientific Games, owns 81% of SciPlay. Formerly the social gaming division of Scientific Games, SciPlay was spun off from that company in 2019. SciPlay’s well-known offerings are Jackpot Party, Quick Hit Slots, Gold Fish Casino Slots, Hot Shot Casino, 88 Fortunes, Bingo Showdown, and Monopoly Slots. The games are free to play, but feature in-app purchases.

Engine Capital wrote a letter to the boards of both companies, laying out a case for why Light & Wonder should acquire the 19% of SciPlay it doesn’t currently own.

The investor, which is one of the largest SciPlay shareholders, says the Las Vegas-based company is worth $15 to $16 a share. At the low end of that range, that implies a valuation that’s more than 25% above the stock’s Monday closing price. Engine believes that the acquisition would immediately add to Light & Wonder’s earnings.

Engine Capital Idea isn’t Original

Activist investors often push for change at the companies they invest in. Hence, the term “activist,” and those alterations can, and do, include mergers and acquisitions.

It’s not a critique, but Engine’s idea of Light & Wonder acquiring SciPlay isn’t original. Scientific Games in July 2021 offered an 11% premium to purchase the 19% of SciPlay it doesn’t own. At that time, the suitor said it wouldn’t entertain other offers for the target.

If a deal can’t be reached between both companies, or if Light & Wonder is no longer interested to acquire SciPlay, we don’t believe the status quo is desirable and we would then encourage SciPlay to start a review of its strategic alternatives and look for a buyer with the blessing of Light & Wonder,” Engine Capital Managing Partner Arnaud Ajdler and partner Brad Favreau wrote.

Light & Wonder abandoned its bid for SciPlay last December, sending shares of the target soaring in the process.

Engine Capital Active with SciPlay

Engine Capital disclosed what’s now a 7.4% stake in SciPlay in a March regulatory filing, and by the end of the second quarter, the investor controlled four board seats at the Las Vegas-based company.

In June, the activist investor penned a letter to SciPlay’s board, pressing for information on the gaming company’s relationship with Light & Wonder. Engine expressed concern that the two companies extending an intellectual property contract is of no value to SciPlay.

Speaking of value, Engine Capital asserts Light & Wonder trades at a discount to its intrinsic valuation due in part to the “drag of SciPlay’s undervaluation.” There might be something to that claim.

Despite a series of corporate actions aimed at paring debt and bolstering its balance sheet, Light & Wonder’s stock lost nearly half its value over the past 12 months.