Bally’s Shareholder Fight Heats Up As K&F Growth Capital Unveils Counterproposal

Erik Gibbs

Bally Corp logo

A brewing battle for control of Bally’s Corporation has intensified.

K&F Growth Capital, a significant shareholder through entities it manages, is urging the company to reject a recent acquisition proposal by Standard General, Bally’s largest shareholder, and instead pursue a meticulously crafted, six-step plan for long-term growth.

Standard General’s allegedly opportunistic bid

In a press release issued Tuesday morning, K&F Growth expressed that it views Standard General’s offer as an opportunistic attempt to exploit Bally’s current vulnerabilities. K&F Growth’s managing partners and co-CIOs, Dan Fetters and Edward King, point to Bally’s declining share price, down roughly 45% in the past year, and its discounted bonds trading at 28% below par value, as evidence of a market lacking confidence in the company’s current direction.

Soo Kim, chairman of Bally’s and managing partner of Standard General, is perceived by K&F Growth as aiming to capitalize on this weakness by acquiring the company at a fraction of its true value. Standard General owns a 23% stake in Bally’s and has offered to buy the remaining shares at $15 per share.

That was a 41% premium on Bally’s share price when the offer was made on March 11. The deal was then worth around $684 million.

Furthermore, K&F Growth argues that Standard General’s plan would be financed through Bally’s already stretched balance sheet. This, it asserts, would jeopardize future investments and hinder the company’s financial stability.

K&F Growth proposes a comprehensive plan to unlock Bally’s potential and create significant value for shareholders. It believes Bally’s possesses “individually strong assets” and a compelling portfolio but has strayed from a successful strategy.

Furthermore, K&F Growth criticizes the company’s pursuit of “moon shot bets on huge, unfunded development projects” and failed online execution. It believes these have eroded investor confidence.

The six-point path to lift Bally’s

K&F Growth Capital outlines a specific plan with actionable steps to strengthen Bally’s:

  • Reject Standard General’s acquisition: Protect shareholders from an undervalued offer and allow Bally’s to pursue a strategy with potentially higher returns.
  • Refocus management on core operations: Improve profitability by optimizing existing casino resorts. K&F Growth Capital estimates that operational improvements could increase Bally’s margins by 400 basis points. This translates to roughly $7 per share based on current valuations.
  • Monetize non-core assets: Sell the international interactive business (Gamesys). K&F Growth believes the asset is not synergistic with Bally’s core U.S. casino operations. This divestiture could generate substantial capital, estimated at $11 per share. The savings could be used to de-lever the company or fuel strategic growth initiatives.
  • Mitigate development risk: Large-scale projects in Chicago, Las Vegas, and New York are viewed as high-risk endeavors. As such, Bally’s may not be well-equipped to handle them alone. K&F Growth Capital proposes exploring partnerships or exits for these projects, freeing up capital and reducing risk exposure.
  • Reshape U.S. interactive operations: Abandon the unsuccessful sports betting strategy, which has resulted in substantial losses. Instead, K&F Growth advocates for prioritizing online casino products that complement and enhance the experience of Bally’s physical locations.
  • Adopt a disciplined M&A strategy: With a strengthened financial position, K&F Growth Capital proposes utilizing the freed-up capital for strategic acquisitions of land-based casinos. However, it emphasizes the importance of a disciplined approach, ensuring all acquisitions deliver a strong return on invested capital.

Benefits for all stakeholders?

K&F Growth positions itself as a valuable partner with a proven track record. Fetters and King express confidence that their “long term supportive shareholder” perspective, coupled with strategic and financial expertise, will propel Bally’s towards a brighter future.

The company stresses that its plan benefits all stakeholders. It believes it will:

  • Reduce debt and improve profitability for the company
  • Increase shareholder value potentially exceeding Standard General’s offer
  • Enhance Bally’s long-term financial health and stability
  • Secure employment opportunities and tax generation through responsible financial management

The Special Committee of the Board now faces a critical decision. It must carefully evaluate both Standard General’s acquisition offer and K&F Growth’s proposed plan, considering the potential impact on shareholders, employees, and the company’s long-term prospects.