An update on Anchor Gaming (SLOT: 47) part -1-
I) Anchor Gaming's merger with Powerhouse Technologies (PWRH)
SLOT is completing its merger with Powerhouse Technologies (PWRH). SLOT bought on the cheap a well managed company with little debt (debt/equity <0,2) which showed strong results as of lately. The purchase price of 280 million in equity (19,5 USD/share) and 60 million in debt, which will be paid all-cash (remember that SLOT has over 80 million cash on hand and no debt). The transaction will be accounted for using the purchase method of accounting and is expected to ve neutral to slightly accretive to Anchor within the first full year after closing. Through the PWRH merger SLOT expands its three own business-lines (gaming-machines, casinos, gaming route) and enters into the on-line lottery market, as well as into the racing-track wagering systems market.
1) PWRH most important business segment, on-line lottery (AWI, Automated Wagering, Inc), represents a high quality source of recurrent revenue. AWI has a only 18% market share of North America's lottery contracts (the lion's share going to G-Tech), but has recently outbid its competitor, G-Tech in several large and smaller multi-year contracts. AWI has a good chance to increase its market share when over 10 domestic on-line contracts are scheduled for procurement through 2000. Several international opportunities have been seized last year, as well. While the domestic lottery market is rather mature, the international market is growing rapidly.
2) Through VLC (Video Lottery Consultants) PWRH has a 40% market share in the video lottery market (machines and central system contracts). Its coin-free technology made successful inroads into the casino markets. VLC's machine pipeline increases SLOT's market share (currently about 5-7% of the North American casino gaming machines). PWRH's excellent R&D-team is a welcome addition to Anchor Gamings existing team.
3) In February 1999 PWRH opened the Sunland Park Casino, NM, a racetrack casino in a low competition environment. SLOT already owns two of the most profitable casinos in the USA, the Black Hawk Central Station Casino and the Colorado Grande Casino. Until recently, these two casinos have been in a low competition environment, which however has changed due to the opening of several bigger casinos in the vicinity. While still being hugely profitable, SLOT's Colorado casinos probably will not show the historic returns, as higher promotional costs diminish the bottom line somewhat. Therefore, Sunland Park is a welcome addition to SLOT's casino portfolio, and Anchor Gaming's management team is bound to optimize profit the way they did it in Colorado.
4) PWRH's United Tote (37% market share in North America for parimutuel racetrack systems) existing relationship with existing racetracks could proof beneficial if legislation allows the construction of more casinos on existing racetracks.
5) PWRH has a profitable gaming route in Montana, which expands SLOTs very profitable gaming route in Nevada. SLOT has long-term contracts with stores such as Smith's, allowing for placing gaming machines for a fixed fee in these stores without sharing the profit. SLOT's gaming route is a slow-grower, but a very reliable and higly profitable source of recurrent income.
continued on---->part 2
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