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Bally’s Dutch auction plan drives stocks upside down

Posted on: June 24, 2022, 10:49 a.m.

Last update: June 24, 2022, 10:58 a.m.

On a strong day for gambling stocks, Bally’s (NYSE:BALY) stands out. This is after the regional casino operator announced an auction in the Netherlands to buy up to $190 million of its outstanding shares.

at Bally's
Bally’s Atlantic City. The operator’s stock is soaring today on plans for a Dutch auction. (Image: Atlantic City Press)

As of midday, shares of the Rhode Island-based gaming company are up nearly 10%, making the stock one of Friday’s best-performing casino stocks. That puts a dent in an 11.24% loss over the past week. Bally’s entered Friday after losing half its value this year.

Bally’s today announced that it has launched an amended “Dutch Auction” tender offer to purchase its common stock for cash at a price per share of not less than $19.25 and not more than $22.00 $ for an aggregate maximum purchase price of up to $190 million. The tender offer begins today and will expire at midnight, New York time, end of day, July 22, 2022, unless extended or terminated earlier by Bally’s,” according to a statement released by the company.

Bally’s operates 14 casinos in 10 states.

Other game companies use Dutch auctions

Essentially, Bally’s is buying back its own shares. But a Dutch auction is a unique twist on traditional buyout efforts.

The auction methodology in the Netherlands is different from the open market share buyback. In a Dutch auction, the price of what is sold is determined by considering all bids to arrive at the highest price.

This methodology has already been used in the gambling industry. For example, at the end of 2021, Red Rock Resorts (NASDAQ:RRR) significantly reduced the number of outstanding shares through a Dutch auction.

Buyback programs are often viewed as votes of confidence by management and a signal that they believe their company’s stock is undervalued. With its shares down nearly 66% over the past year, that could be the message Bally’s is sending to investors.

“Bally’s Board of Directors has determined that Bally’s should pursue a $190 million takeover bid in light of recent changes in capital markets. Bally’s currently plans to return capital to shareholders in the future, including through its previously announced $350 million return of capital program,” the company said in the statement.

Sharp reduction in outstanding Bally shares

One of the main benefits of share buyback programs and Dutch auctions is the reduction in the number of outstanding shares of a company, thereby increasing earnings per share. In the case of Bally’s, the casino operator could significantly reduce the number of its outstanding shares thanks to the Dutch auction.

“If the tender offer is fully subscribed, ordinary shares representing between 16.4% and 18.8% of the issued and outstanding shares of Bally will be purchased, depending on the purchase price payable in the tender offer. public procurement,” the company said.

Bally’s has 60.02 million shares outstanding. The company intends to pay for the program with cash and borrowings from a credit facility.