Tuesday, April 30, 1996 | 11:59 a.m.
Uncertainties over a pending merger and declining gaming-machine sales contributed to a first-quarter loss at Bally Gaming International Inc.
Bally's three divisions -- gaming, Wulff and systems -- all reported decreases. The company said slot-machine sales from the gaming unit dropped due to a decrease in new casino openings. Gaming revenue fell 16 percent to $23.6 million from the 1995 period.
Wulff, Bally's European arm, posted a 13 percent drop in revenue, to $31.4 million, also due to lower demand, the company said. And sales of Bally's computerized monitoring systems fell 18 percent to $5 million.
Bally Chairman Richard Gillman said costs related to the pending merger with Alliance Gaming Corp. totaled $1 million.
"Excluding the impact of the unusual charges, we would have earned a profit of 4 cents a share," he said.
Analysts weren't surprised at the results. Pre-merger performances are often hurt by uncertainty over job security, which causes some employees to concentrate less on their current jobs than on finding new ones.
Bally stock closed at $7.50, down 25 cents, in Nasdaq trading Monday. That price is down about $1 from last week's average price and is nearly $4 below the $11.70 Alliance agreed to pay for Bally stock in the merger scheduled to close June 18.
That spread has prompted questions from Wall Street observers over the likelihood the merger will be consummated. They note that it would be far cheaper for Alliance to accumulate Bally stock at its current price than to proceed with the $11.70 offer. But they acknowledge Bally doesn't have the cash to do that.
The spread would seem attractive to arbitrageurs, who specialize in trading stocks of companies planning or rumored to merge. At Bally's current price, an arbitrage specialist could buy the stock now and tender it to Alliance for $11.70, thus realizing a gain of almost 50 percent in just a few weeks -- if the merger proceeds.
The fact Bally's price has fallen over the past week indicates a lack of demand for the stock. Some observers attribute that to skepticism about the deal, which hinges on Alliance's ability to raise money to pay for the acquisition.
In a bid to limit dilution to current equity holders, Alliance last week revised its original plan to offer $75 million in senior secured notes, $15 million of pay-in-kind preferred stock and $60 million of common stock. Alliance also planned to borrow $30 million from bank lenders.
Under the revised plan, Alliance increased the debt offering to $140 million of senior secured notes and said it would exchange $85 million of 7.5 percent convertible subordinated debentures for a new series "substantially identical to the old," which were convertible to 100 Alliance common shares per $1,000 debenture.
The new debentures would automatically convert to 180 shares of Alliance common stock per $1,000 debenture upon successful completion of the merger.
The company said that if all old convertible holders participated in the exchange offer, Alliance would have 15.3 million new shares of common -- "considerably fewer than the previously contemplated common stock offering."
Alliance also said that under the new financing proposal, debt would total $158 million upon closing of the merger -- "less total indebtedness than presently outstanding for the two companies on a combined basis prior to the merger.
"This financing package will provide the combined company with enhanced capital structure better suited to the execution of its long-term business strategy," Alliance said.
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