Shake-up under way at Alliance

Kevin Rademacher

Thursday, July 1, 2004 | 10:56 a.m.

Amid a weak stock price and resulting investor lawsuits, Las Vegas-based slot machine giant Alliance Gaming Corp. this morning said board member Richard Haddrill will take over as chief executive.

Haddrill has served on the Alliance board since April 2003 and was chief executive of the software company Manhattan Associates Inc.

Haddrill also served from 1996-99 as the top executive for the technology and gaming company Powerhouse Technologies Inc. During that time Powerhouse was acquired by Anchor Gaming, a publicly traded gaming company that was eventually taken over by International Game Technology.

Haddrill will assume the new post with Alliance on Oct. 1, succeeding Robert Miodunski who will continue to serve as a consultant to the board.

"Dick's strong technology and software background coupled with his knowledge of the gaming industry provides the type of leadership background which will guide Alliance to the next level," said David Robbins, Alliance chairman. "We are also very pleased to be able to retain the services of Bob Miodunski, who was instrumental in the success and transformation of Alliance into the technology focused company that it is today.'

Alliance shares, which traded as high as $34.16 over the past 52 weeks, were down 45 cents this morning, trading at $16.71.

The shareholder lawsuits filed last month in federal court in Las Vegas, allege that company officers violated securities laws by issuing false and misleading statements regarding the company's business prospects that artificially inflated the company's shares.

The suits follow a decline in the Las Vegas slot machine maker's shares after the company issued an earnings warning.

The company made "grossly inflated projections while knowing full well such projections were unachievable" and deceived investors into buying shares at inflated prices that traded as high as $34 per share, according to one suit filed by a San Diego law firm.

The statements allowed the company to consummate acquisitions at inflated prices and allowed company officers to sell $3.6 million worth of their own shares at inflated prices, permitting the company "to grow and benefit economically from the wrongful course of conduct," the suit continues.

The suit filed by the San Diego firm also claims Alliance's acquisition of slot maker Sierra Design Group for up to $191 million suffered from "massive integrative problems" and that Sierra's strength in the New York video lottery market had "lost steam, causing defendants to question whether Alliance Gaming had in fact overpaid for Sierra."

Amid the turmoil, Aimee Marcel, a gaming analyst with Jefferies & Co., said the move by Alliance appears to be positive.

"We think they needed new blood in there," she said. "This (change) gives the investors some hope for the future."

Still, a report issued this morning by Jefferies indicated that investors may see the sudden turnover as a negative. Marcel added that it is unclear if Miodunski chose to leave or was forced out.

"When your stock gets cut in half in a three-month period, you've got to wonder how long the board will keep management in place," Susquehanna Financial analyst Eric Hausler told Bloomberg News this morning. "It's the right time for a management change. The company has stumbled."

The Jeffries report noted that Alliance, during the second quarter of this year, was the New York Stock Exchange's worst performer, down more than 46 percent due to the troubled Sierra Design acquisition and increases in its research and development expenses.

Also this morning, Alliance announced that it has completed the sale of its Nevada slot route subsidiary United Coin Machine Company.

Alliance Gaming sold United Coin to Montana-based Century Gaming and received $100 million in cash. Century also assumed about $5 million in debt. The sale agreement also contains a requirement for Century to acquire machines from Alliance's Bally Gaming unit over the next five years.

Also, the proposed sale of Alliance's Louisiana slot route company, Video Services Inc., fell through, the company said today. Video Services was expected to be sold to Gentilly Gaming LLC. Alliance, which owns a stake in Video Services, would have received about $1.95 million of the $4 million sale price of the company.

Operating under the name Bally Gaming and Systems, Alliance is the nation's No. 2 slot machine maker. The company's most recent Securities and Exchange Commission filing said it sold more than 90,000 gaming machines during the past five years.

The company also reports about 1,500 employees companywide with about 500 Las Vegas-based employees.

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