425: Everi Holdings Terminates Stock Repurchase Program, Implements Sell-to-Cover Policy Amidst IGT Merger

Everi Holdings Inc. announced the termination of its stock repurchase program and the implementation of a mandatory sell-to-cover policy for restricted stock units and performance stock units, primarily to retain cash for a potential special dividend related to its merger with IGT's gaming and digital businesses.

Summary

• Everi Holdings Inc. has terminated its stock repurchase program, effective May 2, 2024.
• The company's Board of Directors had previously authorized a stock repurchase program of up to $180 million, set to expire on November 3, 2024.
• Under the program, Everi repurchased 7.5 million shares at an average price of $13.40 per share, totaling $100 million.
• As of December 31, 2023, $80 million remained available under the program, but no shares have been repurchased since then.
• Everi is also implementing a mandatory sell-to-cover policy for tax withholding obligations on restricted stock units (RSUs) and performance stock units (PSUs), effective May 1, 2024.
• This replaces the previous practice of withholding shares, aiming to preserve cash for a potential special dividend related to the merger with IGT.
• The special dividend, if declared, will be based on the company's cash and cash equivalents at closing, adjusted for net working capital, indebtedness, transaction fees, and employee retention costs.
• The company believes that allocating cash from the terminated stock repurchase program and the sell-to-cover policy towards the special dividend is more appropriate.
• Section 16 officers will be required to file a Form 4 to report the sale of stock to cover tax withholdings under the new policy.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the termination of the stock repurchase program might be seen as a negative, the focus on a potential special dividend and the strategic rationale behind it provide a more balanced outlook. The success hinges on the IGT merger.

Positives

• The termination of the stock repurchase program and the implementation of the sell-to-cover policy are aimed at maximizing cash available for a potential special dividend to shareholders.
• The special dividend is intended to reflect the cash flow generated by the company through the merger date.
• The company's focus on retaining cash could be seen as a positive sign of financial discipline in anticipation of the merger with IGT.

Negatives

• The termination of the stock repurchase program may disappoint investors who expected further share repurchases.
• The mandatory sell-to-cover policy will require Section 16 officers to sell a portion of their stock to cover tax withholdings, which could be perceived negatively.
• The amount of the special dividend is uncertain and subject to various adjustments, potentially resulting in a smaller dividend than anticipated or no dividend at all.

Risks

• The special dividend is contingent on the successful completion of the merger with IGT, which is subject to regulatory and shareholder approvals.
• The amount of the special dividend is subject to adjustments based on various financial factors, which could reduce the final amount.
• The termination of the stock repurchase program could negatively impact the stock price if investors viewed it as a sign of financial weakness or uncertainty.
• The forward-looking statements in the press release are subject to various risks and uncertainties that could significantly affect the financial or operating results of Everi, IGT, or the combined company.

Future Outlook

The company anticipates that the cash retained from the terminated stock repurchase program and the sell-to-cover policy will be allocated toward a potential special dividend related to the merger with IGT. The amount of the special dividend, if any, is subject to various adjustments and the successful completion of the merger.

Management Comments

• The Company believes that the cash which may have otherwise been utilized under the Stock Repurchase Program or to facilitate the tax withholding obligations in connection with the settlement of RSUs and PSUs will be more appropriately allocated toward the Special Dividend.

Industry Context

The gaming industry is currently experiencing consolidation, as evidenced by the proposed merger between Everi and IGT's gaming and digital businesses. Terminating stock repurchase programs to conserve cash for dividends or acquisitions is a common strategy in such situations. The sell-to-cover policy is a mechanism to manage tax obligations related to equity compensation, which is a standard practice in many publicly traded companies.

Comparison to Industry Standards

• Terminating stock repurchase programs to conserve cash for dividends or acquisitions is a common strategy in the gaming industry.
• Scientific Games (now Light & Wonder) previously suspended its share repurchase program to focus on debt reduction and strategic investments.
• Aristocrat Leisure Limited has also used cash reserves for acquisitions rather than extensive share repurchases.
• The sell-to-cover policy is a common mechanism used by companies like Las Vegas Sands and MGM Resorts International to manage tax obligations related to equity compensation.

Stakeholder Impact

• Shareholders may be impacted by the termination of the stock repurchase program and the potential special dividend.
• Section 16 officers will be impacted by the mandatory sell-to-cover policy.
• Employees may be impacted by the employee retention costs considered in the special dividend calculation.

Next Steps

• Everi and IGT will file relevant materials with the SEC regarding the proposed transaction.
• A definitive proxy statement/prospectus will be mailed to stockholders of Everi and shareholders of IGT.
• Investors and security holders are urged to read the registration statement, the joint proxy statement/prospectus and all other relevant documents filed or that will be filed with the SEC, carefully and in their entirety.

Key Dates