IGT offers to buy back 11 million shares of stock

Gary Thompson

Tuesday, Dec. 7, 1999 | 11:44 a.m.

International Game Technology said it will buy back nearly 13 percent of its outstanding stock at $21 a share, a 19.6 percent premium over its closing price on Monday.

Reno-based IGT, the world's largest slot and gaming systems manufacturer, said the offer to repurchase 11 million of its 85.9 million outstanding shares will begin "on or before" Friday.

"This indicates IGT believes the best use of its available cash is the repurchase of its own stock," Dave Ehlers, chairman of Las Vegas Investment Advisors Inc., said today. "IGT has been doing this for years."

Between September 1996 and September 1999, IGT bought back 27.4 million shares of its stock, reducing the total outstanding to about 100 million shares. In the past three months, it's bought back another 14 million shares.

IGT stock was quoted at $19.75 a share, up $2.1875 or 12.5 percent, in trading late this morning after a brief opening delay due to an order imbalance.

While the buyback program has a clear short-term impact on IGT's stock price, the longer-term results will depend on "how they perform on the earnings side," said Prudential Securities gaming analyst Joe Coccimiglio.

"One of two factors that will impact earnings is how quickly the California Indian gaming market opens up, and the timetable there is uncertain," he said.

Coccimiglio estimates California tribes, which currently have about 17,000 slots, could ultimately operate as many as 43,000 machines -- more than in either Mississippi or Atlantic City, the second and third largest slot markets.

"The other factor is IGT's Australian-type video reel product and how quickly the company can introduce them domestically and how well the machines perform on casino floors," Coccimiglio said.

The Aussie-type slots resemble video games more than traditional reel-spinning machines and are designed to provide higher hit frequencies and more entertainment for players, he noted. Initial sales of such machines, which IGT introduced at the September gaming exposition in Las Vegas, are expected to begin next March or April.

IGT, which has supplied more than 72 percent of the slots in American casinos, has been losing market share in recent years. Coccimiglio predicts the company will place 55 percent of the 79,000 slots expected to be sold next year.

Under terms of the tender offer, IGT will buy up to 11 million of its shares at $21 a share. If more than 11 million shares a tendered, they will be bought on a prorated basis. The offer isn't contingent on a minimum number of shares being tendered.

The company said it will finance the $231 million offer through available cash. It issued $1 billion of junk bonds last May to finance the acquisition of Sodak and to repay some debt. As of Oct. 30, it had about $990 million of debt outstanding and about $400 million in cash.

IGT said it has retained Salomon Smith Barney to act as its financial advisor and dealer manager for the tender offer.