A key Bally’s Corporation shareholder is urging the company to reject a takeover bid that “woefully” undervalues its assets.
Standard General‘s latest bid to take Bally’s private is an attempt to exploit the stock market’s low confidence in the company and acquire a vast casino portfolio at a cheap price, K&F Growth Capital said in a letter to the Bally’s Board of Directors Tuesday. The firm advised alternative measures to restabilize the company, which it claims could return twice as much for shareholders.
Led by Bally’s Chairman Soo Kim, Standard General’s offer values the company at roughly $684 million, or $15 per share. That is roughly 8% higher than where Bally’s shares closed Monday, though a fraction of the $2 billion offer Bally’s rejected in 2022.
Bally’s stock at ‘a point of disinterest’
Bally’s stock is down roughly 45% over the past year, with bonds trading at a roughly 28% discount to par, K&F highlighted.
K&F Managing Partners Dan Fetters and Edward King attribute that to a number of factors, including overspending on online sports betting, underfunded projects, and overall mismanagement of the company’s 16 casinos.
“Moon shot bets on huge, unfunded development projects, failed U.S. online execution, casino resort properties underperforming its regional peers, an overlevered balance sheet with little near-term prospects for de-levering and irresponsible capital allocation decisions have driven the stock and bonds to a point of disinterest from the investing community,” Fetters and King said in the letter.
‘Inconceivable’ financial decisions
The duo called the $69 million in shares Bally’s repurchased in Q4 2023 “inconceivable,” considering project funding woes. They also noted how quickly Kim’s offer followed the buyback.
Standard General is Bally’s largest shareholder, owning 26.4% of the company, according to an updated filing following its annual report.
K&F owns less than 1% of Bally’s, though Fetters and King are prominent names in the gaming investment world. They co-founded Acies Investments, the industry’s most active VC firm in 2022, according to Sportico.
Multi-step plan to double Bally’s stock
Shareholders could lose out on double their money if Kim’s bid is approved, Fetters and King warned.
They presented a plan to deliver that value, mostly focused on divestment strategies.
Bally’s abandoning sports betting dream?
K&F recommended refocusing Bally Bet from a copycat betting app to solely supplement the company’s physical casino business.
The sports betting and gaming app is on its third iteration, after $3 billion in acquisitions resulted in less than 1% share of the market.
“The company lost its way thereafter – chasing a deeply flawed omni-channel strategy that was executed by overpaying and subsequently writing down (or writing off) a series of interactive assets, issuing massive amounts of equity in large part to acquire a sports betting customer who never arrived, and blindly pursuing massive new development opportunities without the requisite large-scale casino construction expertise,” King and Fetters said.
They recommended a strategy similar to Boyd Gaming, which provides market access for FanDuel in some states and owns a 5% stake in the company. Bally Bet is operational in seven states, with access to sports betting licenses in 11 more, according to its website.
Divesting from large-scale projects
Fetters and King highlighted the need to secure a partner for the Chicago casino project, which has been on hold amid an $800 million funding gap. They named Hard Rock International as a potential fit.
They also recommended divesting in or securing partnership opportunities for the Tropicana in Las Vegas and the Ferry Point golf course in New York.
