GTECH considers buyout possibility; state is optimistic

GTECH Holdings Corp. has received an unsolicited offer from an undisclosed party wishing to gain a controlling interest in the West Greenwich-based lottery machine maker, spurring speculation about potential buyers and the company’s future in Rhode Island.

The company’s board of directors has hired Citigroup Global Markets to advise them as they weigh the offer, said Robert Vincent, a spokesman for GTECH. The board of directors has placed no timeline on its decision.

Vincent declined to identify the party that submitted the takeover bid. However, Sept. 13 reports in The Wall Street Journal indicated that Goldman Sachs Group Inc.’s private equity group tendered the offer. Goldman Sachs reportedly has been trying to form a syndicate of buyers that included Rhode Island’s Providence Equity Partners and the Carlyle Group.

Reports of the buyout offer incited a trading frenzy of GTECH stock on Sept. 12, causing shares to surge 14 percent, the largest gain in three years, to $34.81 on the New York Stock Exchange. Shares fell 66 cents to $34.15 the following day.

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The lottery giant is about halfway finished building a $88.5-million global headquarters across the street from Providence Place mall. The project stems from a deal GTECH made with the state in 2003 to move to downtown Providence in exchange for a 20-year contract to run the state’s lotteries. The deal also guaranteed that the company would maintain at least 1,000 jobs in the state.

Michael McMahon, executive director of the R.I. Economic Development Corporation, said that he and the governor have both received phone calls from GTECH executives who gave assurances that the company plans to stay rooted in the state.

“I’m an optimist,” McMahon said in a Sept. 14 interview, “and I’m very comfortable with the future of GTECH in Rhode Island.”

McMahon added that companies like those reportedly interested in buying GTECH very rarely change the location of a company after an acquisition.

“This is not an opportunity where you’re going to be doing a lot of slashing and burning to pick up a company,” said McMahon, a career venture capitalist. “GTECH has been very well-managed.”

Asked what the company’s future would be following any potential sale, Vincent, GTECH’s spokesman, said, “We can’t speculate what a future owner may or may not do, but the current management is committed to what they are doing here.”

GTECH’s revenues have increased every year since 2001, making the company attractive for a buyout.

The company is expected to generate between $250 million to $300 million in cash flow annually and its lottery business, which accounts for 80 percent of its revenue, is a “predictable business” with long-term recurring contracts that would make it an “attractive candidate” for a leveraged buyout,” wrote Celeste Mellet Brown, an analyst with Morgan Stanley, in a note to investors last week.

GTECH’s contracts with lottery authorities in U.S. states including California and countries such as Spain “provide a near-ideal income stream” for a highly leveraged private equity acquisition, Smith Barney analyst Michael Rietbrock wrote on Sept. 13. Rietbrock is based in New York and rates GTECH a “buy.” Among 12 analysts tracked by Bloomberg, seven rate the shares “buy” and five say “hold.”

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