Gambling without capital

10 January 2006 By Robert Cyran Follow @rob_cyran

Take Lottomatica. The Italian lottery operator, is engaging in a heavily leveraged $4.8bn buyout of its American competitor Gtech. Yet the deal’s structure allows Lottomatica to assume control while retaining an investment grade rating and without diluting its parent.

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Lottomatica, the Italian lottery company, has agreed to buy its US rival Gtech Holdings for $4.8bn (E4bn).

Lottomatica will fund the acquisition through: E400m in available cash; a E1.4bn rights issue; E750m in nonconvertible subordinated debt due in 2066; and a E1.9bn senior loan guaranteed by Lottomatica's parent, De Agostini. Privately held De Agostini owns about 57% of the capital of Lottomatica and has agreed to subscribe to E800m of Lottomatica's rights issue.

The chief executive and chief financial officer of Gtech will become the two top executives at the combined company and will also participate in the fund raising.

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