ARISTOCRAT Leisure's bigger-than-expected profit downgrade could make it a "compelling" takeover target, according to analysts. The gaming company last week got about $330 million cheaper after it cut its full-year profit guidance to $50m to $60m against consensus of about $88m last week, which saw its market value fall to about $1.44 billion from $1.77bn.
The stock today dropped further to a 52-week low of $2.62, before rising to $2.77.
Citi analysts told clients Aristocrat may be "too compelling" and believes it could have held talks with US-listed Bally Technologies.
"We understand that Aristocrat and Bally came close to a merger some years ago, but a deal was never consummated," said analyst Jenny Owen. "Aristocrat may become just too compelling, leading to a bid by another."
An impediment, Owen said, could be the Ainsworth's family stake, which stood at 22 per cent at end August 2010, because the family is forced to repay a loan upon sale of the shares.
"Potentially the sale would trigger a net loss?(but) there is potential that a scrip-for-scrip transfer may avoid the obligation for repayment and defer capital gains tax," she said.
But mergers and acquisitions activity in the industry in general may not be as likely, with Owen saying deals among the larger gaming companies are unlikely.
ALL Price at posting:
$2.74 Sentiment: Buy Disclosure: Held
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