K&F calls shenanigans

Bally’s shareholder K&F Growth Capital has issued a letter to the company’s Board of Directors, urging it to reject the acquisition deal offered by Standard General, Bally’s largest shareholder

In the letter, K&F accuses Soo Kim, Chairman of Bally’s and the founder of Standard General, of taking advantage of the drop in Bally’s share price over the past year to “to exploit this weakness and acquire Bally’s at a fraction of its fair value, using as a source of funds Bally’s own already overstretched balance sheet.”

K&F also believes that Standard’s offer is a poor one that would leave Bally’s in more debt.

“Moon shot bets on huge, unfunded development projects, failed U.S. online execution, casino resort properties underperforming its regional peers, an overlevered balance sheet with little near-term prospects for de-levering and irresponsible capital allocation decisions have driven the stock and bonds to a point of disinterest from the investing community,” K&F writes. “It is inconceivable that despite having major, unfunded development projects, the Company repurchased $69 million of its shares in the fourth quarter of 2023 alone, jeopardizing the Company’s financial stability and access to capital, and being executed mere months before the Chairman’s offer to take Bally’s private.”

Get back to (good) business

So, K&F proposes a different course of action, laid out in six steps, the first of which is to reject Standard General’s offer.

After that, K&F wants Bally’s to get back to its core strengths, away from expensive casino projects in Chicago, New York, and Las Vegas.

“The Board, if not otherwise distracted by these development projects, has the opportunity and capability to refocus and realign management (including new hires, as needed) to address margin deficiency across (i) player targeting, visitation, engagement and loyalty, (ii) scope of casino operations, and (iii) cost structure.”

The third step K&F proposes is to sell Bally’s non-core interactive gaming business and use the money to either pay down debt or plow back into the core business.

Fourth, K&F, as already mentioned, wants Bally’s to move away from its Chicago, Las Vegas, and New York projects and focus on its regional casinos. The company is preparing to break ground on a Chicago casino, but K&F believes it should “immediately pursue operating partnership conversations” to either “offload or de-risk” the project.

“It is critical Bally’s does not allow the Chicago project to hamstring for years to come its capacity to pursue other strategically compelling, synergistic opportunities,” K&F says.

Similarly, K&F feels that Bally’s should find a partner for any planned development next to what will be the new stadium for MLB’s A’s franchise, which will be where the Tropicana currently stands. The Trop closed today to prepare for demolition, just a couple days shy of its 67th birthday.

And K&F believes New York is a lost cause, that Bally’s is just allowing itself to be distracted by the potential casino license that will never materialize.

Fifth, K&F wants Bally’s to “curtail all online sports activity to a business that is purely an amenity offering” and re-focus on its core casino customers. Then, rather than just following the competition, perhaps Bally’s can come up with an online casino product that sets itself apart from the field.

And sixth, after enacting the first five steps, K&F says Bally’s should get back to a disciplined M&A strategy centered around “compelling and synergistic land-based casino resort assets.”

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