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IGT to Sell Double Down


International Game Technology Plc. announced that it has signed a definitive agreement to sell its successful social gaming subsidiary, Double Down Interactive LLC, to South Korean company DoubleU Games Co., a leading global social casino operator headquartered in Seoul.

IGT is not leaving the social space, though. The transaction establishes a new multi-year strategic partnership between IGT and DoubleU Games to provide player experiences in the social casino market worldwide.

The deal represents a big win for IGT, which was subject to criticism in 2012 when it bought the social gaming company, which had 70 employees at the time, for what many thought was a vastly overinflated price of $500 million. But Double Down Interactive and its DoubleDown Facebook casino proved to be a cash cow for the company, and was largely responsible for the meteoric rise of social casinos in the U.S., which have flourished in the absence, in all but three states, of legalized for-money online gaming.

DoubleU Games will pay $825 million for Double Down.

“Since acquiring DoubleDown in 2012, IGT has grown it into one of the largest and most successful brands in the North American social casino market,” said IGT CEO Marco Sala. “After several years of strong, organic growth and increasingly attractive valuation levels, the time is right for us to maximize the value of this asset for our shareholders. We will continue participating in the growth of the social casino market through our multi-year, strategic partnership with DoubleU Games.”

“This transaction represents a unique and value-accretive partnership combining the operational excellence of DoubleU Games with IGT’s world-class slot content,” said Ga-Ram Kim, CEO of DoubleU Games. “With this partnership, we are excited and confident about DoubleU Games’ future as a global leader in social casino.”

Analysts are lauding the timing of the sale, which comes after the pioneering company’s initial surge has faded, and competition in the now-crowded social space has led to flat results. The sale will remove what is becoming a drag on IGT’s balance sheet.

“DoubleDown trends were disappointing in 2016,” Sala said on the company’s fourth-quarter earnings call in March. “Daily active users declined with proliferation of competing aps that offered compelling social features and the mobile functionality. One of the reasons why DoubleDown is suffering is increased competition—and increased competition has been very often driven by new applications.”

The competitive struggles of the DoubleDown social casino were seen as a main reason IGT’s North American interactive segment dipped in the fourth quarter to $230 million, compared to $263 million in the fourth quarter of 2015. Interactive revenues for the year were down by 14 percent.

The $825 million price, to be paid in cash, represents 10.5 times Double Down’s full-year 2016 Adjusted EBITDA. Proceeds from the transaction will be used for general corporate purposes, including debt reduction. IGT will provide an updated financial outlook that includes the full impact of the transaction in late May, in conjunction with its first quarter of 2017 results, according to the company.

“The transaction presents a good price that generates earnings and valuation accretion at a time when the stock is under pressure,” said David Katz, of the Telsey Group in a note last week.

“The competitive landscape in the social casino business has tightened, and there is no indication it will improve, which suggests the timing is opportune. Irrespective of incremental investment since acquisition in 2012, the sale price implies a solid return on the $500 million acquisition cost.”

“We are encouraged to see IGT divest a non-core business like Double Down, capitalize on the valuation, and deleverage the balance sheet,” Union Gaming said in a note.

While most analysts applauded the sale, it falls far short of the $4.4 billion that Caesars got in 2016 when it sold its Playtika social games division. Social casinos have experienced a slump in the last year, including Double Down, which failed to equal its 2015 revenue last year.

Upon the closing of the sale, the parties will enter into a game development, distribution and services agreement which will enable DoubleU Games to offer IGT’s extensive casino game library on DoubleU Games’ combined social casino platforms, in exchange for ongoing royalties to IGT.

The sale has been approved by the IGT’s board and the necessary governance body of DoubleU Games, and is subject to customary closing conditions, including regulatory approvals. The sale is anticipated to be completed in the second quarter of 2017.

The Raine Group and Credit Suisse International are acting as financial advisers to IGT, and Wachtell, Lipton, Rosen & Katz and Cooley LLP is providing legal counsel. Deutsche Bank is acting as financial advisor to DoubleU Games, and Kim & Chang and Morgan Lewis & Bockius LLP is providing legal counsel.

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