Light & Wonder encouraged to double down on SciPlay stake by activist investor
Shareholder Engine Capital weighs in with letter asking supplier to acquire remaining 19% outstanding stake in social gaming developer as shares rise 5.7%
Light & Wonder should become the majority shareholder in social gaming developer SciPlay through an acquisition of the remaining 19% stock it doesn’t own, according to activist investor Engine Capital.
The fund, which holds a 5.7% stake in SciPlay, as well as a stake in Light & Wonder, has written a letter to the board of directors of both companies mooting a potential acquisition at a price of between $15-$16 per share.
Light & Wonder has already held discussions with SciPlay over a potential acquisition, but later discontinued these discussions in December, prompting a 19.2% drop in the latter’s share price.
In the letter, Engine Capital suggests the current structure of SciPlay is “inefficient and creates an overhang” on both companies’ intrinsic value.
The shareholder also suggests that Light & Wonder’s own shares trade at a discount due to the “drag” of SciPlay’s undervaluation, asserting that an acquisition of the remaining 19% stake would be an immediately accretive one for the firm.
Engine Capital managing partner Arnaud Ajdler and fellow partner Brad Favreau, who jointly authored the letter, held firm on their stance regarding a potential acquisition but also suggested an alternative course should these calls fall on deaf ears.
“That said, if a deal can’t be reached between both companies, or if Light & Wonder is no longer interested to acquire SciPlay, we don’t believe the status quo is desirable and we would then encourage SciPlay to start a review of its strategic alternatives and look for a buyer with the blessing of Light & Wonder,” Ajdler and Favreau wrote.
Speculation surrounding a potential acquisition of the remaining 19% stake caused a 5.7% increase in the share price of SciPlay, which increased to $11.91 in early trading on the Nasdaq.
Engine Capital, which is based in New York, has previously questioned Light & Wonder’s relationship with SciPlay, expressing its concern over a $255m IP licensing agreement in April.
The perpetual licensing agreement entitled SciPlay to exclusive access to all content created at Light & Wonder for a three-year period and non-exclusive access to all IP created or acquired after this point.
SciPlay is currently negotiating an extension of this IP agreement with Light & Wonder, which retains an 81% stake in the business.
However, at the time Engine Capital asserted that a deal was of “little value” to the SciPlay business, and that potential conflicts of interest could arise which might lead SciPlay to make unnecessary payments to Light & Wonder.