Scientific Games Corp (SGMS.O), which makes tickets and software for lotteries, said it would acquire slot machine maker WMS Industries Inc (WMS.N) for about $1.42 billion to beef up its exposure to the booming casino gaming industry.
The deal, coming soon after casino operator Pinnacle Entertainment's PNK.N $869 million acquisition of Ameristar Casinos ASCA.O in December, highlights the consolidation in the casino industry driven by gaming demand from emerging markets such as China.
Scientific Games, whose largest shareholder is billionaire Ronald Perelman, will pay $26.00 for each WMS common share, a 59 percent premium to the stock's closing price of $16.37 on the New York Stock Exchange on Wednesday.
Shares in WMS, known for its slot machine Reel'em In, rose to $24.85 in early afternoon trade on Thursday. Scientific Games shares were up nearly 11 percent at $9.93 on the Nasdaq, after touching a high of $10.88.
"The acquisition is transformational for Scientific Games, enabling us to offer a complete portfolio of lottery and gaming products and services to both new and existing customers around the world," Chief Executive Lorne Weil said.
The acquisition would make Scientific Games's diversified gaming group business its top revenue contributor, up from 15 percent in 2011.
Other slot machine makers were also up on the deal.
Shares of International Game Technology (IGT.N), the largest slot machine maker in the U.S, rose 3 percent while those of rival Bally Technologies BYI.N were up 4 percent on the New York Stock Exchange.
"The transaction demonstrates cash flows as undervalued for both Bally and IGT, and could bring speculation of further consolidation in the casino supplier space," analyst David Bain of Sterne Agee & Leach wrote in a note.
He does not see an immediate competitive threat from the new company to Bally and IGT.
The deal, which includes debt of $85 million and cash on hand of $55 million, will immediately add to earnings per share and free cash flow, Scientific Games said.
BofA Merrill Lynch and Credit Suisse Securities LLC advised Scientific Games on the deal, while Cleary Gottlieb Steen & Hamilton LLP was the legal adviser.
Macquarie Capital advised WMS on the deal.
(Reporting by Chris Peters and Arpita Mukherjee in Bangalore; Editing by Sriraj Kalluvila)