8-K: Galaxy Gaming Amends Proxy Statement Amidst Shareholder Litigation Over Proposed Merger with Evolution

Galaxy Gaming has supplemented its definitive proxy statement following shareholder litigation alleging incomplete disclosures regarding its merger with Evolution Malta Holding Limited.

Summary

• Galaxy Gaming has filed a supplement to its definitive proxy statement related to its proposed merger with Evolution Malta Holding Limited.
• This supplement addresses concerns raised in demand letters and lawsuits from several shareholders who claim the original proxy statement was incomplete and misleading.
• The lawsuits allege that the proxy statement omitted key information about the company's financial projections and analyses performed by its financial advisor, Macquarie Capital.
• While Galaxy denies the allegations, it is providing additional disclosures to avoid delays and costs associated with litigation.
• The supplement includes revised details about the background of the merger, including the timeline of offers from Evolution, starting with a non-binding indication of interest on February 21, 2024.
• The initial offer on February 21 did not include specific pricing terms or post-transaction employment offers for executives or directors.
• Evolution's offer increased to $2.19 per share on March 24, 2024, representing a 38% premium to the closing stock price on March 22, 2024.
• A subsequent offer on April 19, 2024, proposed $2.62 per share, a 100% premium to the closing stock price on April 18, 2024.
• The final offer before the merger agreement was a $3.20 per share offer on May 30, 2024, also representing a 100% premium to the closing stock price on May 29, 2024.
• The supplement also includes additional details on the financial analysis conducted by Macquarie Capital, including comparable company and precedent transaction analysis.
• Macquarie Capital's discounted cash flow analysis used a discount rate range of 15.3% to 17.3% and terminal multiple ranges of 4.9x to 6.4x for 2029E Adj. EBITDA and 9.4x to 11.9x for 2029E Adj. EBITDA less CapEx.
• The company has also provided additional unaudited prospective financial information, including projections for revenue, Adjusted EBITDA, EBIT, NOPAT, Capital Expenditures, and Unlevered Free Cash Flow through 2029.
• The merger is scheduled to be voted on at a special meeting of stockholders on November 12, 2024.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the shareholder litigation and the need for a supplemental proxy statement. While the merger offers a premium, the legal challenges and potential delays create uncertainty.

Positives

• The company is proactively addressing shareholder concerns by providing additional disclosures.
• The merger offers a significant premium to the company's historical stock price.
• Detailed financial projections are provided, offering transparency to investors.
• The company is working to minimize the impact of litigation on the merger process.

Negatives

• Shareholder litigation indicates potential dissatisfaction with the merger terms or disclosures.
• The need for a supplemental proxy statement suggests potential issues with the initial disclosures.
• The litigation could potentially delay or disrupt the merger process.
• The company is incurring costs to defend against the litigation.

Risks

• The merger may be delayed or terminated due to ongoing litigation or failure to secure stockholder approval.
• The company may incur significant costs related to defending against shareholder lawsuits.
• The merger could disrupt the company's operations and relationships with customers and employees.
• There is a risk that the company may not be able to retain key personnel after the merger.
• The market price of the company's stock could be negatively impacted by the uncertainty surrounding the merger.

Future Outlook

The company's future outlook is tied to the successful completion of the merger with Evolution. The company has provided financial projections through 2029, which are contingent on the merger's completion and the company's ability to execute its business plan.

Management Comments

• The company believes that the allegations in the demands are without merit and supplemental disclosures are not required or necessary under applicable laws.
• Galaxy specifically denies all allegations in the complaints and demands that any additional disclosure was or is warranted.
• Certain of Galaxy's executive officers may continue to provide employment or other services to Parent after the Effective Time.

Industry Context

The gaming industry is seeing consolidation, and this merger is part of that trend. Evolution's acquisition of Galaxy Gaming is likely aimed at expanding its market presence and product offerings in the gaming sector. The transaction is consistent with other recent acquisitions in the gaming technology space.

Comparison to Industry Standards

• Macquarie Capital's analysis included a comparison to selected public companies such as Inspired Entertainment Inc., Ainsworth Game Technology Limited, and Everi Holdings Inc.
• The median Enterprise Value / LTM Adj. EBITDA for these companies was 5.2x, while the mean was 5.1x.
• The median Enterprise Value / LTM Adj. EBITDA less CapEx for these companies was 11.3x, while the mean was 15.8x.
• The precedent transactions analysis included the acquisition of Everi Holdings Inc. by International Game Technology PLC and PlayAGS, Inc. by Brightstar Capital Partners.
• The median Enterprise Value / LTM Adj. EBITDA for these transactions was 6.2x, and the median Enterprise Value / LTM Adj. EBITDA less CapEx was 10.1x.
• The implied per share equity value range of $1.85 to $1.99 based on a 29.2% to 39.2% premium to the closing share price on July 17, 2024, is within the range of typical premiums for similar transactions.

Legal Proceedings

• Six purported stockholders of Galaxy have sent demand letters to the Company.
• Two purported stockholders have sent an unfiled complaint.
• Two purported stockholders of Galaxy have filed complaints in New York state court.
• The demand letters and complaints allege that the Definitive Proxy Statement is materially incomplete and misleading.

Stakeholder Impact

• Shareholders are impacted by the potential merger and the ongoing litigation.
• Employees may be impacted by the uncertainty surrounding the merger and potential changes in employment.
• Customers and suppliers may be impacted by the potential changes in the company's ownership and operations.

Next Steps

• The company will hold a special meeting of stockholders on November 12, 2024, to vote on the merger.
• The company will continue to defend against shareholder litigation.
• The company will work to satisfy the closing conditions of the merger agreement.

Key Dates

Keywords

merger, proxy statement, litigation, shareholder, Evolution, Macquarie Capital, financial projections, acquisition, premium, discounted cash flow