Why WMS Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of WMS Industries (NYSE: WMS  ) soared a whopping 52% today, after instant-win lotto ticket company Scientific Games (NASDAQ: SGMS  ) agreed to buy the gaming equipment specialist for about $1.4 billion .

So what: The deal, which happens to be the sector's largest in nearly two years, values WMS at $26 per share, and represents a 59% premium to its closing price on Wednesday. Scientific is making the move to expand its product portfolio for casinos and, judging by its own stock's 10% jump today, Mr. Market is thrilled with the price it's paying to do it.

Now what: The transaction is expected to close by the end of 2013, and be immediately accretive to Scientific's EPS and free cash flow. According to Scientific CFO Jeffrey Lipkin:

This combination will diversify Scientific Games' revenue base, expand margins and propel future growth opportunities. Importantly, as we realize efficiencies from our increased size and scope, we should be able to deliver meaningful value to shareholders through the deal's immediate earnings per share accretion, significantly improved free cash flow and anticipated synergies.

So, while WMS' upside is limited at this point, Scientific's newly-bolstered growth and cost-cutting prospects might be worth betting on.

Interested in more info WMS? Add it to your watchlist.

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  • Report this Comment On February 04, 2013, at 11:02 AM, frankvanj wrote:

    As announced recently, Scientific Games (SGMS) agreed to buy slot machine manufacturer WMS Industries (WMS) for about $1.5 billion. However, nowhere in this story did they make mention of a giant elephant in the room: WMS is the primary defendant in a huge, pending lawsuit. Well over 25% of WMS' revenue comes from group play slot machines- the exact slot machines that are the target of a lawsuit being funded by MGT Capital. Note that this lawsuit also includes historical damages, trebled, and ongoing royalties and/or injunctions. There is a massive amount of money at stake here. If WMS loses, Scientific Games could be drawn into liability if they acquire the company. Likewise, Scientific Games might suddenly discover this lawsuit and decide that they don't want WMS after all. Or any other number of complications. This is a big deal, and a huge positive for MGT Capital. It validates (with a real takeover offer) the value of group play slot machines. WMS has succeeded with group play slot machines, and they have allegedly done so by infringing upon MGT's patents. They will have to pay, and now they're going to have to go to the confessional with Scientific Games. In any case, this announcement simply means more money for MGT and more exposure for this overlooked lawsuit.

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