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FILED BY INTERNATIONAL GAME TECHNOLOGY (COMMISSION FILE NO. 001-10684) PURSUANT
TO RULE 425 UNDER THE SECURITIES ACT OF 1933. IN ADDITION, INTERNATIONAL GAME
TECHNOLOGY DEEMS THIS COMMUNICATION TO BE FILED UNDER RULE 14a-12 OF THE
SECURITIES EXCHANGE ACT OF 1934.
Set forth below is a transcript of a conference call held on Monday, July 9,
2001, beginning at approximately 8:00 am, pacific daylight savings time,
relating the recently announced merger agreement between International Game
Technology and Anchor Gaming. Certain bracketed information set forth below is
not part of the transcript of the call but intended to direct the reader to more
complete or clarifying information.
THE MATERIAL SET FORTH BELOW IS NOT A SUBSTITUTE FOR THE JOINT PROXY
STATEMENT/PROSPECTUS THAT INTERNATIONAL GAME TECHNOLOGY ("IGT") AND ANCHOR
GAMING ("ANCHOR GAMING") WILL FILE WITH THE SECURITIES AND EXCHANGE COMMISSION.
INVESTORS ARE URGED TO READ THAT DOCUMENT WHEN IT IS AVAILABLE BECAUSE IT WILL
CONTAIN IMPORTANT INFORMATION, INCLUDING DETAILED RISK FACTORS. THE PROXY
STATEMENT/PROSPECTUS AND OTHER IMPORTANT DOCUMENTS FILED BY IGT WILL BE
AVAILABLE FREE OF CHARGE AT THE SEC'S WEBSITE (WWW.SEC.GOV) AND FROM IGT OR
ANCHOR GAMING, AS THE CASE MAY BE. IGT AND ANCHOR GAMING, THEIR DIRECTORS, AND
CERTAIN OF THEIR EXECUTIVE OFFICERS MAY BE CONSIDERED PARTICIPANTS IN THE
SOLICITATION OF PROXIES IN CONNECTION WITH THE MERGER. INFORMATION CONCERNING
IGT'S AND ANCHOR GAMING'S DIRECTORS AND EXECUTIVE OFFICERS CAN BE FOUND IN THE
DOCUMENTS FILED BY IGT AND ANCHOR GAMING WITH THE SEC. CERTAIN DIRECTORS AND
EXECUTIVE OFFICERS OF IGT AND ANCHOR GAMING MAY HAVE DIRECT OR INDIRECT
INTERESTS IN THE MERGER. ADDITIONAL INFORMATION REGARDING THE PARTICIPANTS WILL
BE CONTAINED IN THE JOINT PROXY STATEMENT/PROSPECTUS.
Statements in this release regarding IGT, which are not historical facts, are
"forward-looking" statements under the Private Securities Litigation Reform Act
of 1995. These matters involve risks and uncertainties, including changes in
demand for the company's products because of a reduction in the growth of
markets or changes in the popularity of its products, a decrease in the
popularity of its wide area progressive systems, the risks of conducting
international operations, the adoption of new unfavorable gaming laws or laws
applicable to gaming machine manufacturers and uncertainties generally
associated with the development and manufacturing of gaming machines and
systems. Historical results achieved are not necessarily indicative of future
prospects of IGT. More information on factors that could affect IGT's business
and its financial results are included in its Annual Report on Form 10-K and
other public filings made with the Securities and Exchange Commission.
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IGT
MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
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IGT
JULY 9, 2001
10:00 A.M. CDT
Coordinator Good morning, and thank you all for holding. I would like to
inform all parties that they will be on a listen only mode
until the question and answer segment of today's conference
call. I would like to inform all parties that this call is
being recorded, if you have any objections, to please
disconnect at this time.
I would now like to turn the call over to Mr. Tom Baker. Thank
you sir, you may begin.
T. Baker Thank you, and good morning, and it's a pleasure to speak to
all of you today about a transaction that many people have
called us many times about the rationale of seeing it come
together. And I'm happy to say that it finally has come
together. The Board of Directors of IGT, as well as the Board
of Directors of Anchor Gaming have unanimously approved a
definitive agreement, which has been signed, which will merge
the two companies together.
Before I go through a few introductory comments, I want to
introduce Maureen Mullarkey, the CFO of IGT who is here with
me. Maureen, do you have a comment for the group?
M. Mullarkey Hello. Thanks, Tom. I'd just like to remind everyone that
during the course of this call, we may make some
forward-looking remarks regarding the future events or future
financial performance for both IGT and Anchor
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 3
Gaming. We wish to caution that such statements represent our
expectations or beliefs and actual events or results may differ
materially.
We refer you to the documents that both companies file from
time to time with the SEC. These documents contain important
factors that could cause actual results to differ materially
from those contained in any forward-looking statements we may
make today. Thanks.
T. Baker Thank you, Maureen. With that, I also want to introduce T.J.
Matthews, the CEO of Anchor Gaming who is with me today and
Geof Sage, the CFO of Anchor Gaming is also on the call and
they'll be available for any questions.
Before we start the questions, though, I just want to go
through just a few elements of the transaction. This was
structured as a tax free, stock for stock transaction. We think
the value of this will be somewhere around a billion three to a
billion four, depending on the price of the stock. IGT will
assume all the indebtedness, which is about $430 million at
March 31.
The Anchor shareholders will receive one share of IGT stock for
every share that they own of Anchor Gaming Stock. There is a
collar, which I'll
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IGT
MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 4
go into in a minute, but the transaction will be accounted for
on a purchase basis. We expect that it will be accretive to
IGT's earnings, somewhere between on the most conservative
side, which would be flat, to as much as 5%, maybe even 7%
accretive on an EPS basis.
Also on a cash EPS basis, we expect it to be 10% to, maybe even
as much as 15% accretive on a cash basis. The determining
elements there will be some of the valuations that will be put
on the assets as we go through the transaction and value it
merging the balance sheets. We can't determine that right now,
but that's the range that we feel is applicable.
T. J. Matthews who I said is with me today and somebody that I
know quite well because we've been in a very successful
strategic partnership for, I guess now about five years, at the
closing he will be joining IGT as a Chief Operating Officer.
And there will be two new directors added to the IGT Board of
Directors. T. J. will be one of those. There will be another
one that will be named within the next couple of weeks.
This transaction is going to allow IGT to now recognize 100% of
the revenue and profits that has been shared by both companies.
It's a strategic benefit we believe to the resulting entity
that is very significant.
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
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We believe that the intellectual property that, although IGT
has had the right to develop under some of the intellectual
property that's owned by Anchor, that this removes any
ambiguity about where we're going in the development of
product, using some of this intellectual property and will be
very positive to that side of our business. But we're also
excited about adding talent to the IGT team.
Just explaining the collar for a minute here on the exchange
ratio, as I said it's a one share for one share deal. There is
a collar range of $50.00 to $75.00. If IGT stock goes below or
above that range, and this is based on a 20-day trading period
prior to the shareholders voting on the merger, then either
side has a chance to relook at the transaction. [PLEASE SEE MR.
BAKER'S FINAL COMMENTS BELOW WHICH CLARIFIES THIS STATEMENT.
THE DESCRIPTION OF THE COLLAR IN THE COMPANY'S PRESS RELEASE IS
ACCURATE. FOR A MORE COMPLETE DESCRIPTION OF THE COLLAR PLEASE
REFER TO THE COMPANY'S CURRENT REPORT ON FORM 8-K FILED WITH
THE SEC ON JULY 11, 2001 AND THE MERGER AGREEMENT ATTACHED
THERETO]
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 6
The merger is going to be subject to both companies various
approvals, including not the least of which is shareholder
approval for both of us, and regulatory approval because we are
in the gaming business. There are a number of jurisdictions
that have the right to look at the deal and we do need approval
from all these jurisdictions.
It will probably close some time in the early part of the
calendar year, we believe before the end of January. If we can
do it quicker than that, we will do it, but that's the date
that we've set as outside date for closing the transaction.
With that, I'm going to open it up to you, and if you have any
questions of us, we have scheduled this call for one hour, but
we'd like to take any questions that any of you may have. So at
this time, I'm opening it up to questions.
Coordinator Thank you. Mike Reitbrock, you may ask your question.
M. Reitbrock Hey, guys, this is Mike Reitbrock. Just two questions, first
just a point of clarification on the collar again, is it
calculated as an average price over
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
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the 20 day period, or is it just the trigger that if breaks the
price anytime within that period, the walkway goes into effect?
T. Baker It's an average.
M. Reitbrock Okay, so it's average over the 20-day period.
T. Baker Yes.
M. Reitbrock And then the second question, could you just let us for those
of us who don't cover slot, could you just give us a sense of
what you're assuming in terms of dollars of EBITDA, either this
calendar year, or whatever? And then if you could give us a
breakdown of where that comes from? I think kind of
three-quarters of it comes from machines, but my assumption is
that a lot of that comes from your joint venture with them. And
also in that context, do you anticipate there being any
antitrust problems, based on where that breakout comes out?
T. Baker Okay, well the revenue from slot, you're right, most of it does
come from the joint venture that they have with IGT. They're
also in the online lottery business, they're AWI and United
Tote is also a subsidiary of
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 8
theirs. They own two casinos, one in Cripple Creek and one in
Blackhawk, and a management contract on the Pala Indian Casino
in California, so three casinos.
In terms of the break up of revenue, T. J.?
T. J. Matthews Our revenues from our gaming systems, gaming operations and
game machines businesses are about equal, a third as a result,
coming from each of those businesses. But our EBIT DA split is
substantially different. About 70% of our EBIT DA is realized
from our gaming machine activity, the vast majority of that in
turn from our joint venture with IGT. Nonetheless, the
businesses of gaming systems and gaming operations both
generate substantial operating income and are now well
positioned to grow in kind of a consolidated environment.
M. Reitbrock So given that most of the income from the machines comes from
the joint venture, there probably wouldn't be an antitrust
problem?
T. Baker We don't anticipate any at all.
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
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M. Reitbrock Okay. And, Tom, in terms of the non-strategic businesses, the
lottery and the casinos, you'd look to sell that or what's the
game plan there?
T. Baker Well, we don't have any announcement on anything there. I think
we have over the years, looked at the online lottery business,
and from time to time have thought about an entry into that
business, but we've never done anything.
We think that Anchor and IGT working together through our joint
venture, have really brought the most significant value added
products to the casino industry that anybody has ever been able
to do. We believe that the lottery business, although it's been
around a long time, is not in a growth period right now. Part
of what we perceive the stagnation of the lottery business is
because there really has been no value added products brought
to the customers for some time.
We think that the combination of Anchor and IGT together, that
we're going to take a fresh look at that, and we think we may
be able to bring some things to the online lottery side that
they haven't seen before. But it needs more value added to see
that business grow.
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 10
M. Reitbrock Okay. Thank you.
Coordinator Thank you. Steven Kent, you may ask your question and please
state your company name.
S. Kent Yes, hello, it's Steve Kent of Goldman Sachs, a couple of
questions following up on Mike's mostly. First off, is there a
right of first refusal for IGT on Anchor, so that if somebody
were to come in, that you'd have right of first refusal, at
least to be able to maintain the discussions either before or
after this announcement?
And then, Maureen, I was just wondering, since we're past the
end of the quarter, whether you could just give us a feel of
how the current quarter outlook has been and what your
expectations, either for Anchor or for IGT have been?
M. Mullarkey As far as our quarter ending June, we did finish our quarter
last week and really, we are sticking with the guidance that we
gave you at the end of our March quarter, and we will have some
positive results from the joint venture and the machine
shipments. And we are planning to announce our third fiscal
quarter on July 19th.
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 11
T. Baker Yes, we really don't have too much more to say about the
earnings for the end of the quarter. As far as any other
transactions coming to Anchor, that would be up to the Board of
Directors of Anchor to evaluate those. There would be a breakup
fee involved, and we certainly would have an opportunity I
guess to take another look at it. T. J., do you have any
comments on that?
T. J. Matthews Just that the break up fee is $30 million.
S. Kent But there's nothing in the joint venture that gives you the
right to first refusal.
T. Baker Oh, I see what you mean. Is the right to acquire Anchor?
S. Kent Right.
T. Baker No.
S. Kent Okay, thanks.
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
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Coordinator Thank you. Todd Jordan, you may ask your question and please
state your company name.
T. Jordan Thanks. My question has actually been answered. Thank you.
Coordinator Thank you. Larry Haverty, you may ask your question, please
state your company name.
L. Haverty State Street Research, Tom, I guess I'd rather, since Maureen
is around, deal with the past here, because Maureen is not real
good on letting the future out before the call. But it seems to
me the current running rate of cash flow or EBIT in the joint
venture is somewhere around $350 million. Am I correct in that?
T. Baker I have to defer to Maureen here. I know you didn't want me to
do that.
L. Haverty Well, Maureen is good on the past.
M. Mullarkey Well, you know I'm following all the rules that are out there,
you know.
L. Haverty We can talk about the past within the rules, right?
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 13
T. Baker Maureen, we agree with that. That sounds a little high.
L. Haverty I don't know, I think it's pretty close.
M. Mullarkey What was the number?
T. Baker Three fifty.
L. Haverty Three fifty, or it might be three and a quarter.
M. Mullarkey That's a little high, Larry.
L. Haverty So, what is it, around three and a quarter?
M. Mullarkey I would be more comfortable around 300.
L. Haverty Okay. It's going to grow, so if you took say three and a
quarter and put a 40% tax rate on it, that's more or less $200
million after tax, right?
M. Mullarkey That math works.
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 14
L. Haverty Yes, and all of this is free cash flow, right?
T. Baker This transaction we expect to be very positive on a cash flow
basis.
L. Haverty Well, I'm just talking about free cash flow, because this
doesn't require a whole lot of capital, this joint venture.
T. Baker Well, we're developing new games and machines come out,
machines go in.
M. Mullarkey Larry, I think you can assume that the depreciation on the
joint venture is approximately equal to the capital required.
The capital required in that you do, you know we put on 6,000
machines at the end of March onto the joint venture.
L. Haverty Well, this has been growing very rapidly and if one put kind of
a multiple, which one would do in the media business, although
not necessarily in the gaming business, because there aren't
very many things that look like this in the gaming business.
Things growing like that in media kind of have a free cash flow
multiple of 25 or 30, which would mean that there is like $250
million of EBITDA kind of waiting for a multiple on it. Because
I
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 15
could more or less justify the current price just on a free
cash flow multiple of the JV, which is now out there for people
to see.
My concern, Tom, is when people kind of get a feeling for what
this joint venture is doing because it now will be not hidden
anywhere, not that it was hidden previously, isn't that top of
the collar unrealistic? I mean this stock could go up a lot. I
understand why the bottom of the collar is there, but I don't
understand why the top is and we're owners of both companies.
T. Baker Okay. Well, the collar is $50 to $75.
L. Haverty Yes, I'm not worried about the $50, but I think when people
start watching this stuff because it'll all be out there now,
the $75, I don't get that.
T. Baker That's what we worked out, Larry.
L. Haverty Okay. What's the motivation for that? You worked it out; I just
don't understand the motivation.
T. Baker Well, I think it was negotiation in terms of the value that IGT
was ready to pay for Anchor and what the Anchor shareholders,
and what the Board of
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 16
Directors was willing to accept on their behalf. It's a fairly
wide collar, and we think that Anchor was interested in having
a floor, and if there was going to be a floor, we were
interested in having a ceiling.
I don't know what will happen to the price of the stock, but if
there's a wide variation in the prices of stock, it doesn't
mean that the transaction won't go forward. It just means
that--
L. Haverty Just there's a chance to talk.
T. Baker We'll talk again.
L. Haverty Okay, great. That's great, Tom, thanks.
T. Baker Okay.
M. Mullarkey And, Larry, I wanted to remind you, too, that we do file the
joint venture results annually with the SEC, so that
information has been out there for the full five years.
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 17
Coordinator Thank you. Dex Flasis, you may ask your question, and please
state your company name.
D. Flasis Yes, it's ECF Value Fund. I was curious if you could illustrate
the cost savings of combining the two companies, maybe on an
SG&A basis and other costs you can take out. I realize you gave
the accretion number, but I was just wondering the potential
for cost savings on the two companies combined.
T. Baker I'll tell you what, the numbers that we quoted were based on
very little, if any, synergies in the SG&A area. There will be
some, but they're relatively minor based on what we can
identify right now.
I should point out that Anchor and IGT have, I believe used
similar philosophies in terms of running their operations to
date, and I don't believe there's a significant amount of fat
in either organization. We don't know what synergies might be
realized that would be significant, and so all of the numbers
that we're giving you at this particular point assume flat to
minimal operating synergies.
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 18
As we learn more about it as we get into this and T. J. and I
and our management teams work together to see what it's going
to look like, we'll be able to advise a little more. But right
now, we're assuming very little.
D. Flasis Okay, and also, you addressed the lottery business, but I
didn't really hear you talk too much about the casino business,
and what the plans were. I realize that I think the Pala with
the management contract is a pretty interesting business model,
but I was wondering about the other two casinos that they own
and what the strategic implications are for the combined
entity.
T. Baker Okay, well, from IGT's point of view, we've stayed away from
operating casinos. In this transaction when completed, we will
own casino operations. We don't currently have any plans to
change the strategy that we've had for some time. Having said
that, we're not ready to say at this particular point that all
of those casinos are for sale; they're not. The Pala deal is
really just getting started.
The management teams in all of those places are in place and
they're being run and well run. They will continue to operate.
We don't have any plans to expand the casino side of the
business. These are businesses that
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 19
Anchor's been in for some time. We didn't acquire the company
because they were in casino operations. We acquired the company
for strategic reasons on the other sides of their business, but
the fact that the casinos are part of it, we've accepted that,
and they'll stay and continue to operate as they have and
operate somewhat autonomously by the Anchor management team.
D. Flasis Okay. Thank you.
Coordinator Thank you. John Burke, you may ask your question and please
state your company name.
J. Burke Yes, this is John Burke with the Daily Deal. On... question to
Mr. Matthews, I was wondering if you'd be able to sort of take
me through the process about how Anchor came to this sort of
decision to merge with International Gaming Technology? I
understand last September that the company had enacted a buy
out of it's majority shareholder, and that was the Fulton
family, and here it is in July, and there's a sale in place. So
I was hoping you might be able to specify on the origins of
this deal.
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 20
T. J. Matthews I think the origins of this transaction are a very successful
joint venture that exists between the two companies and has
existed since 1996. If you take a look at the strength of each
company, I think the two companies match up exceedingly well.
You have very good management at both companies. Anchor has
traditionally concentrated on content, and has done a good job
of diversifying itself into really the most diversified gaming
company in the industry, relative to exposing itself to all
opportunities that exist within gaming.
IGT is clearly the best at distribution, manufacturing,
development of gaming machines, and I think that there is
financial rationale for consolidating revenues and assets that
exist, not only as a joint venture, but within all of those
companies. It makes them financially stronger. It allows us to
kind of explore new opportunities for growth.
Gaming machines obviously, is a big part of that because that's
where we both have our roots and both understand business the
best. But I think that the management teams of both companies
are very excited about maybe being able to change the lottery
industry in terms of having us focus on content. And so I don't
think there was ever an issue at Anchor over the course the
last few years in which conversations have always existed
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 21
between the companies, as to whether or not the companies
belong together.
I think that over a long period of time, there has always been
discussion as to what was the appropriate value and, obviously
with the transaction announced now we feel that Anchor
shareholders are getting appropriate value.
J. Burke One more question, sir, do you fear any backlash from your
shareholders, given that in the Fulton transaction, they did
get a per share value that was higher than the current
consideration being offered?
T. J. Matthews Well, remember we've had a stock split sent.
J. Burke Oh, okay.
T. J. Matthews When you take that into account, then our stock has appreciated
a great deal since that period of time. And from a shareholder
point of view, of course, I'm anticipating that our
shareholders are in a lot of ways anticipating this
transaction, and so this does not come as a surprise, and that
they'll be mostly satisfied by it. But that said, of course the
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 22
shareholders will get a chance to vote on this transaction and
affirm that it's the right thing for them and for our company.
J. Burke Okay. Congratulations on the deal, gentlemen.
T. J. Matthews Thank you.
Coordinator Thank you. Alan Weiselbaum, you may ask your question, please
state your company name.
A. Weiselbaum Hello, it's Alan Weiselbaum from Fulcrum Global Partners. How
are you? I just wanted to understand from a valuation point of
view, if I look at last year for Anchor Gaming, it looked like
your EBITDA was roughly $180 million. Which would put this, if
you use an enterprise value to the 180 million, it's roughly
about seven times EBITDA. And other companies are valued at a
much higher EBITDA multiple than that, so I was curious as to,
one, is there a reason that the EBITDA multiple for Anchor is
lower than the others? And, number two, is that the correct
valuation method to look at how you came up with the
transaction price?
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 23
M. Mullarkey Well, when we valued the company we did a couple of different
things. One is we calculated discounted cash flow for Anchor
Gaming. We also compared it to total enterprise value over
EBITDA, total enterprise value over revenue, price earnings; we
also looked at comparable transactions in the market. We also
invited Houlihan Lokey to give us a fairness opinion. In all
cases, when we tested the value it passed, so we're comfortable
with the value.
T. Baker I think that you're right, though. Anchor has traded at a lower
multiple than IGT and Anchor is in the lottery business, the
casino business, as well as the operation of gaming machines,
which is their most significant business. So each of those
elements are in companies that are specifically involved in the
lottery business or specifically involved in the casino
business or whatever, have multiples that may be different than
the multiples that IGT has. I think there's just been kind of a
blended rate there for Anchor.
You know when you do a deal like this, we've looked at Anchor
for some time, and I suppose in some ways, I wish that we'd
been able to put the transaction together some time ago. It
might have been at lower valuations, but in any case, if you
look at the business the way it exists,
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 24
and strategically what value it's going to have going forward,
and then of course, the other elements in terms of management
and so on that come with it, and then you sit down and try to
come to a price that both sides agree on.
And in this particular case, over the last few days, the stars
just came together, and we're comfortable with the price, based
on all of our financial valuations, and I think Anchor is
comfortable that their shareholders are doing okay, too.
A. Weiselbaum Right. If you looked further out a year or so, it appears and
I'm just using consensus numbers now, it appears that your
growth was going to slow. Do you believe that this will
accelerate your growth over the next two to three years?
T. Baker Yes.
A. Weiselbaum Thank you.
Coordinator Thank you. Joyce Minor, you may ask your question, please state
your company name.
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MODERATOR: TOM BAKER
JULY 9, 2001/10:00 A.M. CDT
PAGE 25
J. Minor Sure Joyce Minor from Lehman Brothers. Can you just talk about
how you're thinking about goodwill, as you look at the
accretion potential? And then, secondly can you talk about the
kind of degree of integration that you're expecting? The
release seems to indicate that T. J. will continue to be CEO of
Anchor. Will the companies still be somewhat separate or will
they be integrated pretty completely? Can you talk a little bit
about that?
M. Mullarkey Well, from a goodwill perspective under the policy guidelines
that were just issued last week, goodwill will no longer be
amortized, but identifiable intangibles will be amortized to
the extent that we can identify intangibles with a finite life.
It will be purchase accounting, and it will be under the
guidelines of the new FASB, and what we have to do is just
spend some time calculating the value around some of the
identifiable intangibles, and also determining the correct
life, if you will.
T. Baker Yes, the correct life, but we haven't done that yet. We haven't
spent enough time to really give you guidance on that, except
that we're comfortable that the numbers we gave you, in terms
of the accretion percentage and so on, we're comfortable giving
those things out.
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PAGE 26
As far as the integration, one reason that we liked the deal
was much of the management will continue to stay. T. J.
Matthews will be an important part of that transition. He'll
continue to be the CEO of Anchor as it continues to run and
parts of it will run autonomously. The casino side of the
business, as well as the lottery side of the business will
continue to report to him with the management teams that he
already has in place.
But as we mentioned, he's also going to assume the role of
Chief Operating Officer of the combined entity. So T. J. is
going to assume a greater role in the operation of IGT when
this is completed.
J. Minor Thank you.
Coordinator Thank you. Troy Hottenstein, you may ask your question and
please state your company name.
T. Hottenstein Hello, it's UBS Warburg. Can you walk us through the walk away
again? I'm a little bit confused I guess on the call you said
if it's outside the $50 or $75 that either side will have a
chance to look at the transaction. Can you kind of just give me
a little bit more detail on the walk away, if you don't mind?
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PAGE 27
T. Baker Well, it doesn't necessarily mean that either side will walk
away. It means that they have an option. We have an option to
continue the transaction in its current form, adjust the ratio
or either side could decide to terminate the deal.
The collar is quite wide, I think quite a bit wider than is
normally customary. And the reason for that is we wanted to
send the message that this is a deal we believe is going to get
done.
T. Hottenstein Right. I mean the press release talks about if it's below $50,
Anchor Gaming will have the right to terminate the merger
agreement, and then above $75, it says that IGT will have the
right to terminate it. So it is actually both sides, either one
could terminate it if you're above or below the $50 and $75,
respectively?
T. Baker In actuality, the definitive agreement came together, either
side can take a look at it on either end. [PLEASE SEE MR.
BAKER'S FINAL COMMENTS BELOW WHICH CLARIFIES THIS STATEMENT.
THE DESCRIPTION OF THE COLLAR IN THE COMPANY'S PRESS RELEASE IS
ACCURATE. FOR A MORE COMPLETE DESCRIPTION OF THE COLLAR PLEASE
REFER TO THE
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PAGE 28
COMPANY'S CURRENT REPORT ON FORM 8-K FILED WITH THE SEC ON JULY
11, 2001 AND THE MERGER AGREEMENT ATTACHED THERETO]
T. Hottenstein Okay, great. And could you walk through what the individual
regulatory hurdles you're going to need to close the
transaction? I know you said there are a number of them.
T. Baker Well, we're licensed in over 300 jurisdictions, so we need
gaming, not in all of those. We need the Hart - Scott - Rodino;
we'll need approval by the eight domestic lotteries and the
Native American--
M. Mullarkey National Indian Gaming Commission.
T. Baker National Indian Gaming Commission has to approve this. So there
are a number of approvals, as well as shareholder approvals.
T. Hottenstein Got you. Thank you very much.
Coordinator Thank you. William Lerner, you may ask your question and please
state your company name.
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PAGE 29
W. Lerner Hello, Prudential Securities, it's been answered, thanks.
Coordinator Thank you. Harry Curtis, you may ask your question, please
state your company name.
H. Curtis Hello, it's Robertson. I jumped on the call a couple of minutes
late. Can you just go through those accretion numbers that you
started with, please?
M. Mullarkey On the accretion, Harry, we're estimating on basic EPS, that it
could be accretive anywhere from neutral to about 5% or 6%. And
that is a function of valuing the intellectual property and
things like that, the timing, the time when the deal gets done.
On a pure cash EPS basis, it could be between 10% to 15%
accretive.
H. Curtis Okay, thank you.
M. Mullarkey You're welcome.
Coordinator Thank you. Joanne Parks, you may ask your question, please
state your company name.
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PAGE 30
J. Parks Hello, Joan Parks from DO Analytics.com. Would you be able to
elaborate a little more on the joint venture you do have with
IGT?
T. Baker Sure, we have a joint venture that's been in place for about
five years and that joint venture, the two companies share
intellectual property, primarily around the use of a wheel on a
gaming machine. And there are machines that have been
developed, the Wheel of Gold, and I think one that is a bit
more widely known, the Wheel of Fortune, based on the
television show, that is the most successful gaming product
that's ever been placed in the casino. Those systems operate,
how many machines do we have?
T. J. Matthews We have over 16,000 machines in the joint venture of which
about 13,500 are Wheel of Fortune and I Dream of Genie.
T. Baker So we have about 16,000 machines in the joint venture, which
most of them are Wheel of Fortune or I Dream of Genie machines,
themed machines, and those operate in most of the jurisdictions
and most of the casinos in the domestic market and a few are
outside in various international areas.
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PAGE 31
J. Parks Okay. How do you think the antitrust regulators would treat the
intellectual property aspect of the joint venture?
T. Baker I really don't think that's going to be an issue because we've
been operating as a joint venture for five years, so nothing is
really going to change, except the way the numbers are reported
by one company, rather than two. But the decision power, and
the control is not really much of a factor.
J. Parks Okay, and are you going to need any foreign regulatory approval
for the deal?
T. Baker Well, we may, but all jurisdictions where we operate and having
gaming licenses will have a chance to say whether they like the
deal or not.
J. Parks Okay. Thank you.
Coordinator Thank you. David Anders, you may ask your question, please
state your company name.
D. Anders I'm all set, thank you.
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PAGE 32
Coordinator Thank you. Tom Van Reserk, you may ask your question, please
state your company name.
T. Van Reserk Hello, Silverado Capital Management, I just wanted to revisit
the issue of the collar and the walk aways for a moment. It
strikes me as slightly unusual that you've left it kind of
open, as to what happens at either end of the collar,
particularly on the top end. I was wondering if there was any
special reason why in negotiations, you didn't just set up a
portion of the collar mechanism that allowed the ratio to
adjust automatically if your stock price got above $75.
That was one question, and then the other one was just on the
regulatory issues for just a second, but maybe you want to
answer the first one first.
T. Baker Well, like I say, the collar was the result of a negotiation
and how both sides felt at the time we were coming together. As
I said, it's a fairly wide collar; $75 is a significant premium
to where IGT is selling and has been selling, in fact, quite a
bit higher than you normally see in collar transactions as I
have been advised. So it's just a matter of the two parties and
where we were in terms of putting it together. I suppose there
are all
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PAGE 33
different kinds of collar transactions that have been done over
the years, and I just don't know what to say about which ones
are usual, and which ones are unusual. This was the way we did
ours.
As far as the regulatory, did you have a question on the
regulatory?
T. Van Reserk Yes, it seemed that there are quite a number. I just wanted to
check and see if we could nail them down a little bit better in
terms of the gaming approvals, and if you could at least go
within the states where you need approvals. And also, the
timing seemed like it was a bit long, and my guess is that
that's because of the gaming approvals that you're going to
need. I just wanted to confirm that.
T. Baker That's true. And as I said, we're licensed in over 300 places
around the world and we need approval in every one.
T. Van Reserk Okay, do you have a sense for which of those processes are
likely to be the gaming concerns? I'm sure some are going to go
much quicker than others and are much less involved than
others.
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PAGE 34
T. Baker No, they all are issues and so, everybody has a chance to take
a look at it, but we expect that it will be approved. We don't
anticipate any major areas that will object to this. I think
both companies have been operating as a joint venture partner
in all of the major gaming jurisdictions.
T. Van Reserk Okay, thanks.
Coordinator Thank you. Mr. Ken Ritter, you may ask your question, please
state your company name.
K. Ritter Thank you, Associated Press, I have three questions and, good
morning. I'm going to ask if you can tell me who's responding.
One is a very basic question, why merge?
T. Baker Why merge?
K. Ritter Yes, sir.
T. Baker Well, really I think the reason is somewhat strategic, first of
all. In that we've been operating together in this joint
venture where we share control of certain intellectual property
and by merging, it really combines our
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PAGE 35
efforts, as well as recognizing the revenue and the true
benefits of the joint venture on one set of financial
statements.
It will allow us, and eliminate any, well the development of
the intellectual property and so on is now going to be
consistent. There will be one group, one company that's making
the decisions on how we're going to deal with the joint venture
and the property that's in it.
Secondly, I think the management, we're getting significant
management skills that we know and feel good about and so,
we're strengthening the management team.
And then, thirdly, it's an accretive transaction.
K. Ritter An accretive transaction, for the reader who isn't into the
business side, please tell us what that means.
T. Baker It means that the earnings per share will be increased as a
result of the transaction. We anticipate that we're going to
have a more profitable company.
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PAGE 36
K. Ritter Thank you. Two other questions, one is a nuts and bolts. How
many employees does Anchor have?
T. J. Matthews Anchor has 2,700 employees.
K. Ritter Thank you. Who's answering?
T. J. Matthews That's T. J. Matthews.
K. Ritter Thank you, Mr. Matthews. And finally, you didn't name the other
representative on the IGT Board, the Anchor representative on
the IGT Board. Have you?
T. Baker No, T. J. Matthews will be on the Board, and there will be one
additional member of the Board of Directors who is not named,
but will be within a couple of weeks.
K. Ritter Thank you. And I take it that's Mr. Baker talking?
T. Baker Yes.
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PAGE 37
K. Ritter Thank you, sir. One other question and I've been listening,
Maureen, I heard referred to. Who is that?
M. Mullarkey Maureen Mullarkey. I'm the Chief Financial Officer for IGT.
K. Ritter M-U-L-A-R-K-Y?
M. Mullarkey M-U-L-L-A-R-K-E-Y.
K. Ritter M-A-U-R-E-E-N?
M. Mullarkey Correct.
K. Ritter And I thank you for taking the call.
Coordinator Thank you. At this time, we show no further questions. I will
now turn the call over to Mr. Tom Baker for any closing
comments.
T. Baker Okay. Well, we thank you for your interest and we will continue
to keep you informed as this transactions unfolds in our
quarterly calls and as
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PAGE 38
things happen, and I know I'm speaking somewhat for T. J. here
that he feels the same way.
Coming back to Troy's question earlier [REGARDING THE COLLAR],
I just had a comment that I wanted to make in terms of the way
the collar works. I just want to say that we've described it in
the press release, we think adequately. It operates pretty much
that way. But one clarification in terms of the decisions, IGT
can decide to walk away at the top end of the collar at $75,
and Anchor can decide to walk away at the bottom end of the
collar. I think in terms of logic of which company would want
to do that, it's pretty self-explanatory, but I was just asked
to clarify that at this time.
We thank you for your interest, and that completes the
conference call. Thank you very much. Bye.