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Emmett Opposes AGS Takeover Bid

Emmett Opposes AGS Takeover Bid

Emmett Investment Management (EIM), a money manager focusing on mid- and small-cap stocks, and holder of around 1.5 percent of the outstanding shares of gaming supplier AGS, sent a letter to AGS investors last month urging them to oppose the $1.1 billion takeover bid from Brightstar Capital Partners.

In the letter, EIM said while it is not opposed to a sale of AGS, now a public company on the New York Stock Exchange, the Brightstar offer “undervalues” the company, noting EBITDA growth that has far outpaced the industry and Q1 net income of $4.3 million, compared to a $334 million loss the same quarter last year.

The board of AGS already has approved the bid from the private equity firm to take the company private for $12.50 per share, a 40 percent premium to the stock price the day before the announcement of the definitive agreement. However, the deal is still subject to shareholder approval.

The offer became public a day before AGS held its first-quarter earnings call, which subsequently was canceled.

“The Brightstar transaction was announced just hours before the release of AGS’ transformational first-quarter results,” wrote EIM CIO and founder Alexander Rohr in the letter to investors. “The company’s first-quarter results reinforce our optimistic view of AGS’ prospects, as organic adjusted EBITDA grew 21 percent, far outpacing the industry. Business mix is also improving at AGS: adjusted EBITDA from the company’s interactive segment, to which the market assigns the highest multiple, increased almost 9X year-over-year and almost 50 percent sequentially.”

Rohr added that AGS investors are essentially being asked to accept a bid “that offers effectively zero—or negative—premium.”

He pointed out that the company’s first-quarter numbers don’t reflect the potential upcoming benefit to the company via possible disruption in the industry caused by the pending merger of International Game Technology’s global games unit with Everi Holdings. He said that transaction could actually help AGS add market share, and that probably isn’t accounted for in the Brightstar offer.

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