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Bally’s shareholder K&F Growth Capital has penned an open letter blasting Standard General’s “woefully undervalued” $15 per share acquisition offer.

The letter, signed by K&F managing partners Edward King and Dan Fetters, details an alternative strategy for the land-based casino and iGaming operator.

Addressed to the Bally’s special committee charged with deciding whether to approve the acquisition, the letter slammed the company’s enthusiasm on “moon-shot” projects.

King and Fetters argued Bally’s shares have been trading with a “clear intrinsic undervaluation” compared to the company’s potential.

“This undervaluation is for an obvious reason: the market has lost confidence in the company’s current strategy and financial stability,” they said.

Bally’s share price has declined 28% over the past 12 months. Prior to Standard General’s offer, which led to a share price bump, the stock had traded at a 44% discount over the past year.

K&F slam Soo Kim

Fetters and King claim Soo Kim (pictured), who is both the chairman of Bally’s and managing partner at Standard General, aims to exploit this weakness and acquire Bally’s at a “fraction of its fair value”.

K&F said to allow the Standard General purchase would deny shareholders the opportunity to earn up to double what Standard General is currently offering. Standard General currently owns approximately 23% of the business.

The hedge fund added it would divert precious capital that otherwise could have been invested into Bally’s casino resorts business.

Fetters and King criticised Bally’s strategy for a litany of failings including failed US online execution, casino resort properties underperforming regional peers, an over-leveraged balance sheet and irresponsible capital allocation decisions.

The two also questioned the logic of Bally’s decision to repurchase $69m of its own shares in Q4 2023 alone, just months ahead of the chairman’s decision to take the business private.

“No longer can the company focus on the vanity, negative return projects and assets sought after over the last three years,” said K&F.

“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.”

K&F’s alternative pan

K&F produced an alternative plan for Bally’s that the company could consider following.

This would involve rejecting Standard General’s “self-serving and undervalued” acquisition proposal.

The operator would then refocus management on core operational discipline to bring the business to EBITDA parity with regional rivals.

Fetters and King propose that Bally’s should then attempt to sell off its non-core international B2C and B2B iGaming business, and use the returns to deleverage.

This would remove grey market exposure and potentially improve access to capital, they said.

“It is… our belief that a US public company should not be in the business of supplying gaming equipment and operations to the Japanese market under the country’s current regulatory framework,” they said.

K&F added the company should remove the uncertainty of its current projects in New York, Chicago and Las Vegas.

It argued alternative strategies should be explored, while the operator’s New York downstate casino bid should be scrapped entirely.

Other aspects of K&F’s plan include exiting the online sports betting space, refocusing iGaming efforts on bolstering the core land-based customer experience and ultimately pursuing a new, refocused M&A programme.

“Enacting the steps above and utilising the monetisation proceeds and optimised margin performance to materially de-lever the balance sheet puts Bally’s in a position to execute on a strategy not too dissimilar to that the company employed prior to 2020: acquire strategically compelling and synergistic land-based casino resort assets,” said K&F.

While K&F owns less than 1% of Bally’s stock, Fetters and King are respected voices in the gambling sector, having co-founded Acies Investments with Jim Murren and Chris Grove.

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