Sterne Agee says GCA/Multimedia Games merger "transformative"

Broker Sterne Agee is backing the merger of GCA and Multimedia Games with a buy recommendation, calling the merger “transformative” and saying that the prospect of gains outweighs the execution risks.“We acknowledge execution risks, though note GCA management has already cultivated strategic collaboration between GCA and MGAM personnel during merger negotiations. GCA will provide clarity with respect to key MGAM employee retention at transaction close and it recognized the importance of retaining critical MGAM employees on last night's conference call.”“We view the pro-forma valuation as overcompensating for execution risks/uncertainties,” the broker says in a market commentary.The GCA offer for MGAM is $1.2 billion cash, or $36.50 per share, “indicating a 9.1x multiple when stock compensation expense and net cash is added back. This compares to the BYI, Rational, IGT and VGT merger valuations of 10.2x/11.3x/8.7x/8.2. GCA has secured debt financing and the transaction is expected to close in early 2015.”

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