July 16, 2014 / 5:30 PM / 3 years ago

RPT-UPDATE 3-Italy's GTECH to buy Vegas slot machine maker IGT for $4.7 bln

* GTECH to pay $4.7 bln in cash and stock

* To take on $1.75 billion of IGT’s net debt

* New company will list on NYSE, delist from Milan

* GTECH shares rise 5 pct, IGT also up in pre-market trade (Adds Breakingviews link)

By Francesca Landini and Claudia Cristoferi

MILAN, July 16 (Reuters) - Italy’s GTECH will buy U.S. slot machine maker International Game Technology for $4.7 billion, shifting the lottery operator away from its struggling domestic market and making it a major player in the casino business.

The purchase of Las Vegas-based IGT is the largest foreign acquisition by an Italian company since 2009, excluding Fiat’s takeover of Chrysler which took place in several stages.

The deal, which will create a group with annual revenues of more than $6 billion, bucks a trend of Italian businesses falling prey to overseas suitors as the local economy stagnates.

IGT makes popular slot machines bearing brands such as that of TV show “Wheel of Fortune” and science fiction film “Avatar”. By buying it, GTECH - the world’s No.1 lottery operator - will also strengthen its foothold in the growing U.S. gaming market.

The comparison between the Italian and U.S. sectors is stark: total net spending for gaming in Italy fell 6.6 percent last year, while it rose 6.7 percent in the United States - above the average global growth rate of 4.2 percent.

GTECH said on Wednesday that it would pay $4.7 billion in cash and shares for IGT and will also take on $1.7 billion of the U.S. firm’s net debt. The total $6.4 billion deal value is above GTECH’s own market capitalisation of $4.4 billion.

The offer comprises $13.69 in cash per IGT share plus 0.1819 shares of a new company to be formed, and represents a 18 percent premium on IGT’s closing share price on Tuesday.

With the purchase of IGT, GTECH would derive more than half of its around $4.1 billion revenues from foreign operations. It currently makes 60 percent of sales in Italy, which is struggling to emerge from its longest recession in 70 years.

“With limited overlap in products and customers, the combined company will enjoy leading positions across all segments of the gaming landscape,” said GTECH Chief Executive Officer Marco Sala, who will become the CEO of the new company.

STOCK MARKET SHIFT

GTECH runs Italy’s popular Lotto game, whose lucrative licence expires in 2016, and manages several state lottery concessions in the United States. It also sells gaming scratchcards in Italy and abroad.

The company said last month it was in talks with IGT, which has was put up for sale this year after its stock slid by almost a third due to falling revenues. The Las Vegas firm was also courted by Apollo and other U.S. private equity funds.

The deal is expected to generate $280 million in annual cost savings by the third year after the closing of the acquisition, GTECH said.

GTECH shares were up about 5 percent by 1115 GMT, outperforming Italy’s blue-chip index. IGT shares were up 11.5 percent in pre-market trade.

“The industrial logic of the deal is clear and synergies are very significant,” said Equita analyst Domenico Ghilotti, saying the $280 million savings figure was double his estimates.

GTECH said it will move its stock market listing to New York from Milan, depriving the Italian bourse of one of its 40 blue chips. IGT will also be delisted from Wall Street.

The two companies will be merged into a newly created holding company to be based in the United Kingdom - a move which analysts said could help lower its tax bill and would also give better access to international capital markets.

The transaction, subject to regulatory clearance, is due to be completed by the second quarter of next year.

GTECH, controlled by two wealthy Italian families through the De Agostini group that has interests ranging from publishing to insurance, is not new to aggressive expansion deals.

Formerly known as Lottomatica, it was renamed after acquiring U.S. listed GTECH in 2006 for $4.7 billion.

After the merger, existing IGT and GTECH shareholders will own 20 percent and 80 percent respectively of the new company. The De Agostini group, which owns about 60 percent of GTECH, will have a 47 percent stake in the new company.

GTECH said it had already received binding commitments for $10.7 billion from Credit Suisse, Barclays and Citigroup to finance the deal.

Credit Suisse, Barclays and Citigroup were financial advisers to GTECH on the deal. Morgan Stanley advised IGT.

($1 = 0.7376 Euros)

Additional reporting by Supriya Kurane and Giancarlo Navach; Editing by Lisa Jucca and Pravin Char

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