In an unfolding narrative that continues to capture the attention of the financial world, K&F Growth Capital, one of the primary shareholders of Bally’s Corporation (NYSE: BALY), has today penned a missive to the company’s board of directors. In the correspondence, K&F has implored the board to eschew a recent takeover bid and to reconsider potential ventures in large-scale projects such as a casino hotel in Chicago.
K&F is taking a stance on this matter prompted by their firm belief that Bally’s stock is not being valuated at a fair market price. The investment firm demonstrated their dissatisfaction with the proposed acquisition offer of $15 per share presented last month by Standard General, a hedge fund headed by Soo Kim, who also holds a director’s seat at Bally’s Corporation. The contention by K&F is that this aggressive move by Standard General is a ploy to exploit the current weakness in Bally’s stock and acquire the gaming company at a dramatically discounted price.
K&F presents a compelling case, arguing that the shareholders would be denied the opportunity to receive what could potentially double the offered value per share. At the same time, bondholders face exposure to an even more leveraged entity, risking asset drainage from their collateral. The resultant leveraging would constrain capital that should ideally be invested in revenue-enhancing initiatives such as casino resorts, thereby compromising employment and tax revenues.
The consensus in the financial world is that Bally’s is unlikely to consent to the said offer. However, there are dissenting opinions that suggest the contrary. To ensure an impartial and thorough evaluation of the bid, the company has formed a committee of independent directors and sought expert assistance from an investment bank and a law firm.
K&F Growth Capital didn’t hold back in their criticism of Bally’s management, calling them out for risky speculation in colossal casino projects, unsound steps in online gaming, underperformance in regional casinos, and questionable financial decisions like buying back $69 million worth of stock in the fourth quarter, in lieu of reducing the corporate leverage.
K&F conveyed a clear message to the corporation – Bally’s needs to refute the Standard General offer, return to its core strengths, and desist from ambitious and costly initiatives in cities like Chicago, Las Vegas, and New York.
The investment firm cited Bally’s notable presence in regional casinos and emphasized the need to leverage these assets rather than pursuing larger urban ventures. Recently, all three major rating agencies have downgraded Bally’s credit, pushing it further into junk status due to escalating leverage.
As part of their constructive critique, K&F drew the company’s attention to their lagging profit before interest, taxes, depreciation, and amortization (EBITDA) margins which have been significantly trailing those of their regional competitors. K&F suggested that rectifying this performance gap could lead to a $7 increase in share price.
In terms of strategy, K&F encouraged the gaming company to collaborate with a partner for the integrated resort in Chicago, believing partnerships could create added value. Regarding Las Vegas and New York, K&F advised Bally’s should sell the operating rights to the Tropicana on the Las Vegas strip (slated for demolition later this year) due to their inability to fund its redevelopment while simultaneously addressing the Chicago project and pursuing a New York casino license.
Furthermore, K&F made a strong argument for Bally’s to divest its non-core international digital assets, in a bid to tackle the accumulated debt while capitalizing on potential interest from prospective buyers. K&F ended their critique by encouraging Bally’s to shift its focus solely to the domestic online gaming industry: instead of sinking more money into online sports betting, they urged the company to bring a unique product to the online casino sector.
