A heavy discount

A Bally’s Corporation shareholder believes that the takeover offer on the table from the company’s biggest shareholder “woefully” undervalues the company. K&F Growth Capital, which owns less than 1% of the casino company, does not want to a special committee to accept the $15 per share offer from Standard General which values Bally’s at about $684m. The offer was a 41% premium on the previous day’s closing price; shares jumped 28% on the back of the news.

wants Bally’s to refocus on regional properties

K&F wants a strategic review to take place instead, which would include a consideration of the sale of Bally’s online assets, as well as cutting the resources it puts into sports betting. The asset management firm also wants Bally’s to refocus on regional properties, which is how the company originally made its name, rather than going after major developments in expensive cities like New York, Las Vegas, and Chicago.

Reasons for poor recent performance

Standard General currently owns about 23% of Bally’s and made its offer in March, which led to the formation of a special committee to consider the hedge fund’s bid. K&F wants this committee to reject the offer.

It pointed out how Bally’s share price has fallen significantly over the past year and it feels like the prospective new owner would be getting a steal with its offer price, which would mean that shareholders are losing out.

It believes the reason why Bally’s share price has languished is because of its current financial instability and strategy. K&F pointed out certain casinos that are underperforming, the feeble efforts to get into the online sports betting space, as well as the decision to repurchase $69m worth of shares in the final quarter of 2023.

Suggesting a plan

K&F is not just pointing out the problems, as it also has proposed a six-step plan that it claims could double the value to shareholders compared to what is currently on the table. This includes the rejection of the takeover offer, refocusing on its core operations, and selling its Gamesys international online operations that it bought for ￡2bn ($2.5bn) in 2021.

It believes that the development of Chicago’s first casino will generate a return on investment that is significantly below the cost of capital. It also noted the small chance that Bally’s will earn a downstate New York casino license and that this is a big distraction for management and adds to costs. Finally, K&F believes that Bally’s Las Vegas efforts aren’t sustainable if it continues with its Chicago and New York City plans.

K&F believes it’s plan is a relatively straightforward

The final two steps are refocusing the online efforts on something in the casino space that stands out from the crowd rather than copying the competition and having a more disciplined approach to mergers and acquisitions. Ultimately, K&F believes it’s plan is a relatively straightforward and will lead to lower debt levels, more value for shareholders, and an increase in profitability.