Tuesday, Jan. 23, 2001 | 11:11 a.m.
Stock run-ups after a deal aren't anything unusual. But at Casino Data Systems, the run-up came before the fact.
After markets closed Wednesday, the Las Vegas-based gaming equipment supplier announced plans to be acquired by Australian slotmaker Aristocrat Leisure for $180.5 million, or $9.25 per share.
The stock closed Wednesday at $8.63; it fell 13 cents Thursday to $8.50.
Casino Data's stock had roared ahead 24 percent in the three previous trading days, despite the lack of any announcements from the company. By the time the deal was announced, Casino Data was at a four-year high. At the $9.25 acquisition price, what would have been a 40 percent premium just one week before had evaporated to 8 percent.
Casino Data said company executives did not act on inside information about the pending Aristocrat deal or leak word of the transaction to outsiders.
"None of that volume was generated by CDS management," said Chief Financial Officer Ron Rowan. "We have stringent policies that prevent that from happening.
"There was absolutely no disclosure, and no disclosure internally either. There was a very small group of people working on this internally."
Rowan implied a third party could be at work.
"We did have (buyout) discussions with a number of other parties, and those parties are not subject to our blackout policies," Rowan said.
Investment adviser John Futrell believes the trading is evidence that news of a deal had leaked.
"The concept of a stock running up is probably attributable to leakage," Futrell said. "You tell a friend of a friend, and rumors circulate rapidly."
But Marc Falcone, gaming analyst with Bear Stearns, is doubtful anyone was acting on inside information. Rumors had been swirling about a Casino Data takeover, he noted, and they are still circulating around other smaller slot makers like Alliance Gaming Corp. and Shuffle Master Inc.
"There's probably been rumors in the marketplace for the last 30 to 60 days that Casino Data could be acquired by several firms ... that, I think, drove up the share price," Falcone said.
Those rumors had picked up during the American Gaming Summit, a Bear Stearns-sponsored conference that wrapped up at the Bellagio Jan. 12. Casino Data, ironically, had made an investor presentation at the conference -- a presentation that wrapped up shortly before a buying spree started in Casino Data stock. Casino Data officials made no reference to a pending buyout at this presentation.
"There were a lot of rumors going around our conference ... I don't think anything more concrete came out prior to that (the announcement)," Falcone said. "Rumors just intensified as it got closer to the acquisition. People were probably making a bet that Casino Data would for sure be acquired at a price higher than the current stock price."
Dennis Neilander, chairman of the Nevada Gaming Control Board, said the stock's spike will be investigated. The control board must approve the Casino Data-Aristocrat marriage before it can proceed.
"Typically during an investigation into a merger, we look at any irregularities in stock trading, and that's obviously something we'll take a look at once they file their application," Neilander said.
Yet Neilander cautioned against drawing any conclusions.
"We'll take a look at it, but we'll have to look at all facts and circumstances surrounding the trading," Neilander said. "There could be facts we're not aware of. If there is insider trading, obviously that's something the SEC will take a look at."
The SEC and the Nasdaq Stock Market, however, aren't saying if they will launch their own examinations of the stock run-up.
"We are not authorized to confirm or deny the existence or non-existence of any investigatory activity," said John Heine, spokesman with the SEC.
Wayne Lee, spokesman for Nasdaq, also declined comment, though he noted that the exchange has two departments that constantly monitor trading activity.
"(The departments) are charged with the authority to conduct regulatory oversight of the Nasdaq Stock Market to ensure a level playing field for investors and to protect the integrity of the marketplace," Lee said. "We have very sophisticated computerized systems that monitor trading activity, and we are alerted about anything that may be out of the ordinary."
Casino Data's stock had been enjoying a rally of sorts through December and early January. After closing Dec. 1 at $5.50, the stock rose as high as $7.13 by Jan. 8 -- a gain of nearly 30 percent.
But this trading was sedate compared to what happened just a couple of hours before the market's close Jan. 12. Casino Data had traded flat for most of the day, but suddenly the stock spiked, closing at $7.69, an 11 percent increase. Volume was 400,000 shares, up from just under 50,000 the day before.
Internet investor boards began buzzing with speculation as to what was going on, though no one appeared to know for sure. One investor noted that all discretion had seemed to go out the door in a buying frenzy.
"The thing about the trading today wasn't the total volume," investor "captainvalue" wrote on the Yahoo! Casino Data message board that evening. "It was the way buyers just took out the offers. Anyone who has watched the stock knows you don't trade it like this. The buyers bought like they didn't care what price they had to pay to get filled.
"One thing is for certain, somebody wanted in bad."
Speculation centered on two possibilities -- one, that a new brokerage firm had initiated coverage on the stock, or two, Casino Data was in merger talks.
One possibility discussed was Shuffle Master Inc., which saw similar trading activity during the period. On Jan. 12, Shuffle Master shot up 10 percent to $17.25.
After a three-day weekend, heavy buying in Casino Data continued for the first several hours on Jan. 16. The stock reached $8.38 before closing at $8.13, a 6 percent gain on the day, as 935,000 shares traded. The next day, Casino Data gained another 6 percent, closing at $8.63 as 1.23 million shares traded. Just before the market closed, the company's stock hit $9 per share.
Just hours after the markets closed Jan. 17, the $9.25 Aristocrat offer was announced. Volume remained heavy when markets re-opened Jan. 18, as nearly 2 million shares traded, but Casino Data actually lost ground, closing at $8.50.
Meanwhile, Shuffle Master -- which has not announced any deal -- traded erratically. It opened Jan. 16 at $18.75 -- up $1.50 from its Friday close -- then closed at $17.31. It then lost 9 percent on Jan. 17, then gained it all back the day after the Aristocrat-Casino Data deal became official.
When leaks are apparent, it puts a company in a tough spot, Futrell said.
"Should they immediately make that announcement?" Futrell said. "But who's to say when they shook hands? Whenever word leaks out, there's a kind of pressure, a need for immediacy to make the formal announcement. You don't want to leave that on the grapevine for long."
SEC regulations require companies to make a public announcement once information has been disclosed to certain investors by company executives. But this selective disclosure rule doesn't apply for leaks, Heine said.
"(Regulations) put a disclosure requirement on companies in situations where a company is making a disclosure to a select group," Heine said. "A leak is not an authorized disclosure."
Rowan said the company disclosed the deal as soon as it was signed Jan. 17.
"We disclosed our information formally as soon as we could, as soon as the deal was signed," Rowan said. "When we got the papers signed, the press release went out."
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