In a sequence of corporate chess moves, investor K&F Growth Capital has made a combative pushback against a takeover bid for Bally’s Corporation, proposing a comprehensive strategic revamping of the company’s business tactics. Earlier in March, Standard General proposed to acquire the remainder of Bally’s for $15 a share, with the Bally’s chair Soo Kim-led company currently holding a 25% stake, making it the operator’s largest shareholder. K&F Growth Capital, tapping into its investment via various entities, has since mounted a stark opposition, urging Bally’s special committee to dismiss the offer from the New York-based hedge fund.
K&F underlines a sharp decline in Bally’s share price over the past year, plummeting around 45%, and highlights that its bonds are presently trading at a discount of 28% to par. Accusations flew from K&F, roasting Soo Kim for his allegedly opportunistic approach in acquiring the group “at a fraction of its fair value.”
The criticism didn’t stop there. K&F condemned the takeover proposal for what it perceives as a detriment to all stakeholders, arguing that the shareholders are being offered a raw deal, deprived of the opportunity to earn potentially double the value per share put forward. It also contends that bondholders would be trapped within an even more leveraged entity, which would further sap the capital necessary for revamping casino resorts, thereby obstructing revenue generation and impeding employment and tax contributions.
K&F insists that a pervasive underestimation of Bally’s intrinsic worth imbues the current market perspective, with market confidence in Bally’s strategy and financial stability crumbling. The hedge fund noted the strains of unfunded development projects, subpar online execution in the U.S., and underperforming casino resort properties. Additionally, the decision by Bally’s to repurchase $69.0 million of its shares in Q4 has been singled out as a move undermining financial stability.
Yet, the hedge fund also pointed out that Bally’s has “individually strong assets” that could be effectively harnessed with appropriate strategy and management, contending that Bally’s thrived with its regional expansion strategy until 2020, before losing its track with a “deeply flawed” omnichannel strategy.
“No longer can the company focus on the vanity, negative return projects and assets sought after over the last three years,” K&F elaborated, urging the company to steer clear of allowing Standard General to swoop in and purchase Bally’s on the cheap.
As Bally’s stands at what K&F dubs a ‘critical juncture’, the hedge fund maps out a six-step plan asserting it could double shareholder value against the Standard General offer.
Step one outright demands rejecting the Standard General acquisition offer, with step two pivoting toward a management refocus on Bally’s operational roots, including curtailing expensive development projects in major cities like Chicago, New York, and Las Vegas.
Steering into step three, K&F proposes monetizing international interactive operations that lie on the fringes of the core U.S. casino operations. Optimistically, it suggests the sale could yield a premium incrementing $11 per share and offer critical de-leveraging.
In steps four and five, K&F proposes to curtail risky construction and operating endeavors, refocusing management on core casino functions, and rethinking the online gaming strategy towards a differentiated experience linked to the physical-casino customer base.
Lastly, step six advocates a disciplined M&A strategy aimed at acquiring compelling and synergistic land-based casino resort assets, evoking a strategy to assess every capital allocation opportunity against a disciplined return on invested capital framework.
K&F concludes with confidence that its outlined pathway is simplistic and poised to benefit all stakeholders, citing a potential reduction in debt, amplified profitability, and significant enhancement of shareholder value.
Bally’s and K&F Growth Capital have been reached out for further comments, with the narrative unfolding as a quintessential corporate battle, teeming with strategic shifts and contention for control.
