Bally’s shareholder calls for end to US OSB efforts as strategy labeled an "unmitigated disaster"

A Bally’s shareholder has implored the group’s special committee to reject Standard General’s “woefully undervalued proposal” to take the operator into private hands.

K&F Growth Capital, an asset management firm led by venture capitalists Dan Fetters and Edward King, has penned a letter to Bally’s board of directors in which it has lambasted Standard General’s latest offer.

Standard General, Bally’s largest shareholder, submitted a $15 per share bid for the remaining stock in the company last month.

Standard General holds 23% of the New York-listed firm and is headed up by Bally’s chair Soo Kim.

K&F took aim at Soo Kim in its letter to the board, claiming that the chair has proposed to “acquire Bally’s at a fraction of its fair value, using as a source of funds Bally’s own already overstretched balance sheet.”

The fund stated the proposal is “counter to the best interests of all stakeholders” and that Bally’s shareholders would be denied the chance to “what may be double the offered value per share.”

K&F argued that Bally’s had “lost its way” since 2020 due to “chasing a deeply flawed omnichannel strategy”, as well as “issuing massive amounts of equity in large part to acquire a sports betting customer who never arrived.”

The firm also took aim at the business’ failure to effectively plan for large-scale bricks-and-mortar developments.

K&F added: “No longer can the company focus on the vanity, negative return projects and assets sought after over the last three years.  After squandering equity value as the chairman of the company and the largest shareholder, Standard General cannot be afforded the opportunity to pick off the company on the cheap.

“Bally’s is at a critical juncture.  We firmly believe there is a ready-made, executable path to create material shareholder value, well in-excess of Standard General’s current offer.”

What’s the plan?

That path, laid out by K&F, includes a six-step process which it claims would refocus operations on core strengths, de-level the balance sheet, and improve shareholder value.

As detailed in the process, the first step is to reject the proposal from Standard General, which K&F reiterated offered a “fraction of the value otherwise attainable.”

Secondly, the investor has suggested a realignment of management, which would include news hires, “to address margin deficiency.”

K&F noted these deficiencies had manifested across player engagement and loyalty, scope of casino operations, and cost structure.

Thirdly, K&F suggested the sale of the group’s International Interactive arm, which includes the previously acquired Gamesys Group, should be divested.

Bally’s acquired Gamesys as part of a £2bn merger in 2021, but K&F has suggested plenty of suitors would be willing to acquire the division that includes Jackpotjoy, Monopoly Casino, and Vera & John.

Proceeds from a sale would be used to de-lever or fund growth, with K&F noting a sale at a 2x EBITDA valuation would be worth an incremental $11 per share for Bally’s.

Furthermore, K&F has called for a shift in strategy for land-based casino operations in New York (withdrawing an application to build a site due the unlikeliness of acquiring a license), Chicago and Las Vegas (engaging an operating partner to support with costs).

The investor has also said a razing of the group’s US online sports betting operations should be explored due to the group’s <1% market share, noting that a “holistic rethink of all online casino to focus all activities on the core physical-casino customer” should also be deployed.

These measures, according to K&F, would effectively de-lever the balance sheet, allowing for  “strategically compelling and synergistic land-based casino resort assets” to be acquired, as per the pre-2020 blueprint for the business.

K&F concluded: “We believe our straightforward plan to strengthen Bally’s serves all its stakeholders – employees, management, fellow shareholders, and debtholders. This plan will reduce debt, increase profitability, and create significant shareholder value.

“We look forward to an opportunity to discuss in detail our proposed plan with Bally’s management and the special committee and offer our assistance to implement our proposed plan. 

“We believe Bally’s and its stakeholders can benefit from our experience, an ‘owner’s’ perspective, and sound advice on strategy and capital allocation, which we have brought to numerous public companies in the past.

“K&F Growth Capital would not have made this investment if we did not believe in a bright future for Bally’s as a public company with an enviable portfolio of high-quality assets, a well-capitalized balance sheet and a talented, dedicated group of leaders and employees. We are confident that by acting as partners, Bally’s will grow stronger.”

 Bally’s shares remained flat today, 2 April, trading around $14.