GTECH (NASDAQ:GTKYY) to buy IGT (NYSE:IGT) for a total of $6.4 billion

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By Jessica Schultz on July 18, 2014 Consumer Staples

GTECH (NASDAQ:GTKYY), an Italian gaming company and the world’s biggest lottery operator, sealed a deal with International Gaming technology (NYSE:IGT), a U.S. company known for making gaming machines. Sources have it that the deal has been signed for a total of $6.4 billion. In addition to the cash payment, IGT’s debts will also be transferred to GTECH (NASDAQ:GTKYY). This seizure of a U.S. based firm by an Italian company is the biggest foreign investment that an Italian company has made this year.

International Gaming Technology (NYSE:IGT) is known for manufacturing slot machines for many famous shows and movies: the firm built machines for “Wheel of Fortune”, a famous TV show. Moreover, the company’s expertise was also used in the famous movie, Avatar. GTECH (NASDAQ:GTKYY), after this deal, has become one of the biggest player in the casino industry worldwide.

If a comparison is made between the gaming industry of these two countries, Italy and the United States, stark results will be seen. The net spending on gaming increased by 6.7 percent in the United States last year whereas the spending dropped by 6.6 percent in the country of Italy.

Interestingly, the total amount for which GTECH (NASDAQ:GTKYY) is purchasing IGT exceeds GTECH’s market capitalization: GTECH has a market capitalization of 4.4 billion whereas it is purchasing IGT for a total of $6.4 billion- $4.7 million in cash and $1.7 billion in debt. GTECH is purchasing IGT’s shares for $13.69 each share together with 0.1819 share of the new company that will be formed in result of this acquisition.

Estimates are that GTECH will be gaining 50 percent of its revenues from foreign operations if this seizure remains successful.

Marco Sala, the CEO of GTECH, said that the new company will enjoy greater revenues with this acquisition since the customers and products of the two original companies overlap. Marco Sala will be the CEO of the new corporation.

GTECH (NASDAQ:GTKYY) is a gaming company owned by two Italian families. The company not only provides lottery services but it also sells game cards, and its services are not limited to the United States or Italy, but the company provides its services to third parties as well. GTECH is currently facing recessions in the country of Italy.

News has it that the company will shift its listing from Milan to New York Stock Exchange, after this acquisition. Moreover, the new company that is expected to be formed will have its head quarters in UK.

Coming to the share prices of IGT (NYSE:IGT), the company, in the last trading session, July 16, opened its shares at a price of $16.94 and closed at a price of $16.92, after hitting the highest figures of $17.05. The company has a market capitalization of $4.18 billion and its price to earnings ratio is reported to be 18.55.

In the last trading session, the stocks of GTECH (NASDAQ:GTKYY) increased by 3.5 percent. GTECH said that it would finance the deal through the cash that it currently possessed and new financings. Citigroup, Barclays and Credit Suisse have entered into deals with GTECH to provide the company a total of $10.7 billion.