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Tickers in this Article: SGMS, WMS, IGT, BYI
The proposed acquisition of WMS Industries Inc. (WMS) by Scientific Games Corp. (SGMS) has seemingly hit a roadblock after a WMS share holder, David Shaev, sued the former in the Delaware Chancery Court, according to Bloomberg. The lawsuit is related to Scientific Games' recent agreement to acquire WMS Industries, a supplier of gaming machines and interactive gaming content, for $1.50 billion. The WMS investor, David Shaev, had alleged that WMS directors agreed to the takeover at an unfair price (Scientific Games had agreed to $26 per share for the acquisition). The complainant also stated that the current deal did not realize the full value of WMS Industries. David Shaev has appealed to the court to prevent the sale.

WMS Industries provides video gaming machines to the casino industry. The company's online interactive business also develops games for the causal, social and mobile segments.

Scientific Games' acquisition of WMS Industries will likely diversify the former's product portfolio and expand its global footprint. Moreover, the current deal will also diversify Scientific Games' revenue stream from lottery-based products and cross sell WMS Industries' interactive gaming products and casino-based games.

Acquisitions have been a part of Scientific Game's growth story. Barcrest Group Limited (acquired in 2011), Sceptre Leisure Solutions (in 2010) and GameLogic (also in 2010) have expanded Scientific Games' ability to offer computerized systems and services to the global gaming industry thus keeping it abreast of changes in the market.

We believe that the company's diversified product offerings, international development activities, recurring revenue business model and strong growth from the Internet-based business will drive the stock over the long term.

Moreover, the company's acquisition strategy is expected to provide Scientific Games a significant competitive edge over rivals like GTECH, International Game Technology (IGT), Bally Technologies (BYI) and Lottomatica going forward.

The sluggish macroeconomic conditions in important international markets is however the primary headwind for Scientific Games going forward. Increasing investments for product development is also expected to hurt profitability in the near term.

Currently, Scientific Games has a Zacks Rank #3 (Hold).

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