Bally’s shareholders wage battle over ownership, development projects

As the famous Tropicana in Las Vegas closes its doors on Tuesday, its operator Bally Company is facing its own existential battle. At stake: ownership, its status as a publicly traded company and its most high-profile projects.

Bally Chairman Soo Kim and Standard General, the private equity fund he founded, last month made an offer to take the company private at $15 per share. Before its offering, the stock was trading at around $10 per share. Standard General owns about 23% of Bally’s shares, it said last month.

But some high-profile investors say Kim is undervaluing the company — as is the market, they say, because it has lost confidence in the company’s strategy and financial stability.

Dan Fetters and Edward King of asset management fund K&F Growth Capital sent a letter Tuesday to the special committee formed to review Kim’s proposal. The letter urged members to reject the proposal.

Instead, Fetters and King propose a strategy that returns Bally’s to its casino roots.

Bally’s has 16 casinos in 10 states as well as an interactive sports betting, Internet gaming and free games business. He announced plans to build Chicago’s first casino and resort to replace the historic Tropicana on the Las Vegas Strip, as well as efforts to secure a gaming license for a former Trump golf course in New York .

Fetters and King argue that Bally’s should stay in its lane and stop wasting money on efforts that aren’t core to its business. They insist the company doesn’t know how to build or operate high-end casinos or online sports betting and Internet gaming businesses, saying spending on those projects is what has driven the stock down share price and market capitalization.

The company’s shares have fallen nearly 30% over the past 12 months.

Kim “proposes to exploit this weakness and acquire Bally’s at a fraction of its fair value,” Fetters and King say in the letter.

“Moon bet on huge unfunded development projects, the failure of online execution in the United States, casino properties underperforming compared to their regional peers, an overleveraged balance sheet with little prospects to “short-term deleveraging and irresponsible capital allocation decisions have pushed stocks and bonds to a point of disinterest by the investment community,” the letter reads.

Shareholders are also challenging Bally’s $69 million in share repurchases during the fourth quarter.

Standard General, for its part, said last month that the proposed privatization transaction “would enable the company’s shareholders to immediately realize a higher price, in cash, for their investment and give them certainty as to the value of their actions, particularly in relation to the value of their actions.” the operational risks inherent in the Company’s activity and the market risks inherent in maintaining a company listed on the stock exchange.

The letter from Fetters and King suggests bringing in a better-equipped partner for the Chicago casino. Hard Rock International, owned by the Seminole Tribe in Florida, had also bid for a casino license there. But Bally’s won with a $1.7 billion commitment, which has since been reduced to $1.1 billion for development. In March, Bally’s chief financial officer told Nevada regulators that the company was seeking $800 million in financing for the project.

Fetters and King also write that Bally’s would benefit from a partnership or outright sale of its Tropicana operations on the Strip. The property, opened in 1957, is closing its doors on Tuesday and is slated for demolition. An integrated complex will be built next to a new baseball stadium for Major League Baseball Athletics, which is expected to be relocated from Oakland to Las Vegas. Gaming Real Estate Investment Trust Gaming and Leisure Properties owns the site.

Fetters and King believe Bally’s should divest the New York golf course and various acquired technology businesses to continue its sports betting business and focus solely on digital casinos.

Bally’s market capitalization is just over half a billion dollars. It has not been able to exert a competitive threat in any space except regional casinos, despite the strength of its historic brand.

Although K&F Growth Capital owns less than 1% of Bally’s stock, Fetters and King are well-known venture capitalists in the gaming industry and co-founders of blank check company Acies Acquisition Corp. with Chris Grove and former MGM Resorts International CEO Jim Murren.

This is the second time Kim has offered to take Bally’s private. In January 2022, it offered $38 per share when the stock was trading at $26.

“We want to buy and we don’t agree with the market,” he told CNBC at the time. “We think it will be worth a lot more in the near future.”

— CNBC’s Jess Golden contributed to this report.