Earlier this month, Scientific Games Corporation (SGMS) announced the sale of its Racing and Venue Management businesses (Scientific Games Racing) to Sportech, a U.K.-based gaming company for approximately $83 million in a cash and stock deal. Investors continue to view the divestiture positively, which resulted in buoyant prices since the company made the announcement. Shares were up 4.17% on Friday alone, closing at $15.25.

Scientific Games is a global IT systems and services company that provides instant ticket and online lottery products, systems and services to lottery authorities and gaming markets worldwide.

Under the agreement, Scientific Games will receive $65 million upfront ($33 million in cash and $32 million in Sportech shares, representing approximately 20% of the outstanding shares) followed by $10 million in deferred cash consideration payable on Sept. 30, 2013 and an additional $8 million if the racing unit meets certain performance targets over the next three years.

The transaction will result in non-cash, pre-tax charge of approximately $55 to $65 million in the fourth quarter of 2009.

The racing-related business has been a drag on earnings for a while. Thus to improve the long-term profitability of the racing-related business, management had earlier consolidated operations in North America and Germany and now has completely divested the division.

Therefore, we expect the divesture to enhance the company’s growth position and be accretive to margin, EPS and cash flow. The planned divestiture will also strengthen the company’s focus on its core business (global lottery and gaming), which will help it drive sustainable growth.

The agreement will enable Scientific Games to take part in the combined businesses of Sportech and Scientific Games Racing through an equity interest in Sportech. Upon the closing of the transaction, both the companies plan to enter into a number of ancillary agreements.

The purchase of the racing unit from Scientific Games will enable Sportech to become a leading betting company with a multi-sport, multi-channel gaming business. The transaction is expected to close in the first half of 2010.

The online gaming software provider Playtech also entered into a deal with Sportech to provide e-gaming solutions for a 10% stake in the newly formed group, according to sources.

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