Wednesday, April 3, 1996 | 11:59 a.m.
Additional Internet and cable-television ventures may be on tap following Alliance Gaming Corp.'s acquisition of Bally Gaming International Inc.
The disclosures came after shareholders of both companies voted Tuesday to approve the acquisition, creating an entity with more than $400 million in annual revenue.
It will take time for Alliance, Nevada's largest slot-route operator, to integrate the far-flung operations of Bally, a gaming-equipment maker with major European interests.
But once Bally is comfortably in the fold, Alliance hopes to use its technological, manufacturing and international expertise to exploit evolving markets while capturing a greater share of the traditional slot-machine and video-game business worldwide.
"It's been a long, arduous road and we still have a long way to go," Alliance Chairman Steve Greathouse told shareholders. "But we are on schedule with our strategic plan."
"We've had some interesting conversations with various people about Internet and cable-TV ventures because they offer unique distribution channels for gaming," Greathouse said. Though declining to give details, he said such Internet or TV projects could capitalize on the Bally brand name while offering prizes rather than cash.
Greathouse also said Alliance has had "very preliminary discussions with competing slot- and video-game makers that share the same vision -- that people who play these machines want more entertainment and more fun."
Alliance also said it has filed registration statements with the Securities and Exchange Commission covering a $150 million debt-and-equity package that is $30 million less than the company said it needed to consummate the merger. But it expects to arrange a revolving-credit agreement with bank lenders to make up the difference.
Alliance executives expressed confidence they'd be able to raise the capital before the "drop-dead" date of May 3 -- the deadline for the merger. But Bally officials said they were prepared to go it alone if Alliance isn't successful.
"The entire deal is contingent upon their ability to finance the merger," Bally Chairman Richard Gillman told shareholders. "But we do have other options if they can't."
Greathouse doesn't believe Bally will have to exercise those options, saying the underwriters -- Donaldson, Lufkin & Jenrette Securities Corp., Ladenburg, Thalmann & Co. and Jefferies & Co. -- are optimistic about the financing.
Alliance said the financing package includes $75 million in senior secured notes, $15 million of payment-in-kind preferred stock and $60 million of common stock. Alliance will pay $76.7 million to Bally shareholders and $69.9 million to refinance Bally debt. The remainder of the offering, plus the bank credit, would be used for working capital and financing costs.
Interest on the $75 million in notes will probably be in the 12 percent to 13 percent range, Greathouse said, while the bank credit line will probably be a few points above prime. Debt service should total $60 million a year.
Alliance will pay Bally Gaming shareholders $11.70 for each share of Bally common, including $7.83 in cash, $3.57 of a preferential Series B special stock and 30 cents of Alliance common.
The Series B stock carries a 15 percent coupon with payment-in-kind, or PIK, provisions, for seven years. Alliance has the option to pay semiannual dividends of $7.50 per $100 of Series B shares, or to issue additional Series B stock in lieu of cash payouts.
Greathouse told shareholders the Bally acquisition makes sense because of Bally's name recognition, technological expertise and international business experience.
Gillman said the 1991 spinoff of Bally Gaming from Bally Entertainment Corp., which operates casinos in Las Vegas, Atlantic City, Mississippi and Louisiana, "left us with three good divisions but no real cash. As a result, we either had to refinance or to partner up with someone else. And Alliance offered the best deal."
He said Bally's three divisions -- Gaming, Systems and Wulff -- "are three dynamic companies with a great future. The combination with Alliance should result in a very strong company that will be able to service debt."
Bally's Gaming Division enjoyed a near monopoly on Nevada slot-machine sales until International Game Technology began offering video-poker games in the early 1980s. Since then, Gaming lost 80 percent of its market share and has posted operating losses for the past 10 years. Gaming began to introduce machines with upgraded technology and graphics in late 1993 and 1994; about 42 percent of the division's $108 million in 1995 revenue came from sales to Nevada and Atlantic City casinos.
Bally's Wulff subsidiary, which generated $131 million of 1995 sales, makes wall-mounted gaming devices sold in Germany, where it claims a 26 percent share of new-machine sales. The Systems subsidiary makes computerized monitoring systems for slot machines and video games. Its 1995 sales were $21 million.
Directors of both companies have approved the merger, saying Alliance could acquire Bally at a reasonable price, gain a higher profile in the gaming industry and "apply its technological expertise to maximum effect" in developing and marketing new video games worldwide.
The companies also said they could realize about $5 million a year in savings, which presumably would include some layoffs. Alliance employes about 1,240 workers, Bally 940.
Bally officers and directors stand to gain more than $10 million from Alliance for their Bally stock holdings when the merger is consummated.
Gillman will get $5 million in cash for a buyout of his employment contract, plus $3.8 million in cash and Alliance stock for the 326,025 shares of Bally common he owns.
Bally President Hans Kloss, who will head the new Alliance subsidiary, will receive $1.5 million in cash and $3 million in Alliance stock. He also owns 187,500 shares of Bally common worth $2.2 million under the merger agreement.
Bally Executive Vice President Neil Jenkins will receive $825,000 in cash and $495,000 in Alliance common stock, plus $1.4 million in cash and stock for his 122,500 Bally shares. Bally Systems Division President Robert Conover will receive $234,000 in cash and $468,000 in Alliance common.
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