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IGT Proxy Fight Heats Up

IGT Proxy Fight Heats Up

A group of dissident shareholders of slot manufacturer International Game Technology went on the offensive last month in a proxy fight to gain three seats on the IGT board.

Former IGT Chairman and CEO Charles Mathewson, along with former gaming analyst Jason Ader and his Ader Investment Management group, are proposing three new board members—including Mathewson—in advance of the company’s March 5 annual meeting. Last month, the group sent IGT shareholders a so-called “fight letter” outlining a host of grievances against the current management and board of the company.

The letter outlined complaints that have long been voiced by Mathewson that the current IGT management is bereft of gaming experience, that share prices have plummeted and market share surrendered under current CEO Patti Hart, and that the board has approved several expensive acquisitions that have failed to produce results and have further damaged IGT’s core slot machine business.

Mathewson has been critical of IGT management since he resigned his CEO position in 2003. After retaining the title of chairman emeritus for several years, Mathewson and IGT parted ways for good in 2010, the company severing all ties with its former chief executive.

Hart recently sent a letter to shareholders urging them to reject the Ader/Mathewson slate of proposed directors and maintain the current eight-member board, and reaffirming management’s faith in the current path, which has seen IGT invest in social gaming platforms and acquisitions such as Double Down Interactive, which runs a social casino on Facebook.

Ader and Mathewson control around 3 percent of IGT’s outstanding shares. In the fight letter, the Ader group points out that the eight current directors own less than 0.1 percent of the company. “Excluding stock options, the Ader Group represents an ownership interest in IGT that is more than 100 times the aggregate ownership interest of the three directors we seek to replace,” the letter said.

Ader’s group was recently joined by New York investment firm Orange Capital LLC, which controls about 1.4 percent of  IGT shares. In a letter to shareholders, Managing Director Daniel Lewis asked the company to conduct a “Dutch Auction” tender for 25 percent of IGT’s outstanding shares, while installing Mathewson and two others on the company board.

Ader’s letter pointed out that IGT’s share price, even after adjusting for dividends paid, has declined more than 20 percent under Hart’s tenure, citing several actions that led to the plunge. The letter singled out several acquisitions it said cost too much and contributed nothing to earnings, including the purchase of Entraction Holding for $113 million, “which they effectively shut down less than 18 months later;” and Double Down Interactive, the social gaming company purchased for $500 million seven months later.

On the dearth of casino industry experience, the letter pointed out that only two of the 13 executives making up the board and management team—Phil Satre and Robert Miller—have substantive casino industry experience. On Hart’s leadership, the letter pointed out the CEO’s résumé, noting substantial dips in share prices of three companies she had led prior to IGT.

Following the Ader letter, IGT sent another letter to shareholders refuting some of the points in the missive. In addition, IGT says “the Ader/Mathewson Group is manipulating data and making misleading assertions.”

The company further contends that Mathewson’s “old-school approach to corporate governance, which was driven by his own self-interests during his tenure as both CEO and chairman, would not be in the best interests of shareholders or even considered acceptable by today’s standards.”

And finally, the company says the payments due to Mathewson after he retired contributed to his “lavish lifestyle” and forced IGT to make drastic cuts in expenses, including cuts in staff. It charges Mathewson is conducting this battle simply out of vengeance.

Wynn Resorts Chairman Steve Wynn came to the defense of Mathewson. Wynn, who considers Mathewson a longtime friend and business colleague, said he was distressed about the characterization of Mathewson by IGT in the letter to shareholders.

“I am personally saddened by what appears to be a paid professional attempt to smear him,” Wynn said. “I’m left with the impression that such an effort is motivated by IGT’s current management’s attempt to distract shareholder attention from current performance.”

“People who worked for him held him in the highest regard, as did every major company in the gaming industry with whom he dealt so successfully,” Wynn added.

 

 

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