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Caledonia Rolls the Dice on Scientific Games With Massive Stake

Scientific Games Corp. (NASDAQ: SGMS) was one of Monday’s big winners after the company announced that it had reached an agreement with a credentialed gaming industry investor to buy a significant stake in the company.

According to the deal, Caledonia will acquire a 34.9% stake in Scientific Games from MacAndrews & Forbes at a price of $28 per share. Also as part of this deal, Scientific Games is implementing a series of governance changes and enhancements, including refreshment of its board of directors.

Pursuant to the deal, the stockholders’ agreement with MacAndrews & Forbes will be terminated to reflect the new investor base.

As for the board of directors, it will be reconstituted to include all existing directors, other than the MacAndrews & Forbes representatives, as well as three new directors.

The transaction between the investing parties and MacAndrews & Forbes is expected to be executed in multiple tranches, after which no investor is expected to beneficially own more than 9.9% of the outstanding shares of Scientific Games.

The first tranche sale is expected to be completed Monday, and the transaction is expected to be fully completed over the next several weeks. The changes to the Scientific Games Board become effective upon the first tranche sale.

As a result, the company more or less reiterated guidance for the full year. Scientific Games expects to see capital expenditures in the range of $210 million to $240 million, as well as positive free cash flow. Consensus estimates call for a net loss of $4.69 per share and $2.68 billion in revenue for the fiscal full year.

Scientific Games stock traded up about 46% Monday morning to $27.65, in a 52-week range of $3.76 to $31.63. The consensus price target is $19.70.