Analysts: IGT poised to expand with acquisition

Wednesday, July 27, 2005 | 11:02 a.m.

International Game Technology will get a new foothold in online gaming without risking its licenses, analysts said today about the Reno company's $90 million acquisition of WagerWorks Inc.

IGT, the world's largest slot machine manufacturer, today announced that it expects to close on the deal by next month.

Privately held WagerWorks, which has offices in London and San Francisco, provides content and technological services for Internet gaming sites.

"The acquisition of WagerWorks will help the distribution of IGT game content across new channels and mediums, including the Internet, mobile devices and interactive television," IGT chief executive T.J. Matthews said today in a statement announcing the deal.

Analysts said WagerWorks' policy of working exclusively in jurisdictions that permit Internet gambling and avoiding companies that offer play in the United States should enable IGT to dodge any regulatory problems.

"This acquisition gives IGT a foothold in Internet gaming without worry about jeopardizing its gaming licenses, since WagerWorks does work for only licensed and regulated sites," said Eric Hausler, a gaming analyst for Susquehanna Financial Group, in a note to investors.

"Internet gambling continues to explode in popularity driven by the proliferation of poker," Hausler said. "We see it more as a vertical play with longer-term accretive implications, although we see IGT more as a back-end supplier and content provider than interested in going into competition against brick-and-mortar customers. We see the acquisition as strategic, not transformational, given a myriad of regulatory issues surrounding mobile or Internet gaming, which may or may not get solved over time."

Sue Schneider, publisher of St. Louis-based Interactive Gaming News, a trade publication that covers the online gaming industry, said WagerWorks "was one of the few software companies that was on IGT's radar screen."

"This deal is going to allow them (IGT) to get into an area of expansion that is really moving quickly," Schneider said. "It's a foothold in a real growth area of the gaming industry."

In addition to giving IGT new distribution channels, the deal gives the company access to popular games in WagerWorks' portfolio. WagerWorks has "Wheel of Fortune," "The Price is Right" and "Ten Play Poker" in its library of games.

IGT estimates that that the transaction would result in additional earnings of 2 cents a share in fiscal 2005 and 2006.