Why Scientific Games shares fell 15.6% on Thursday
Game industry supplier actions Scientific games (NASDAQ: SGMS) fell as much as 15.6% in trading on Thursday after announcing the sale of part of its business. Shares ended the day down 8%.
Brookfield Business Partners has agreed to buy Scientific Games’ lottery business for $ 6.05 billion, which includes $ 5.825 billion in cash and up to $ 225 million in earn-outs based on profit before interest targets , taxes, depreciation and amortization (EBITDA) in 2022 and 2023. The transaction is expected to close in the second quarter of 2022.
This is another unwinding of Scientific Games’ business following the September announcement of the sale of sports betting company OpenBet for $ 1.2 billion to Effort Group.
Scientific Games has spent years gaining a leading position in the gambling and lottery market, but has incurred approximately $ 9 billion in debt to do so. Now he is unwinding part of the business in order to pay off the debt and hopefully get back to profitability.
Investors may fear today that after these sales, there is not enough left to justify the valuation of the company.
Today’s movement needs to be put into perspective. Over the past year, Scientific Games shares have risen 158%, even after today’s decline. Thus, investors had become more optimistic about the company even before these sales took place. Management wants to do everything to become a “global cross-platform gaming company,” and that likely means more digital offerings as online gaming grows. It’s a risky strategy, but an improved balance sheet and reduced activity could allow Scientific Games to once again become a growth stock in gambling.
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