Korea’s DoubleUGames stock riding high on its U.S. acquisition

Shrugging off concerns for the high bidding price, investors cheered the news that South Korea’s social casino gaming publisher DoubleUGames Co. decided to acquire U.S. social casino subsidiary of International Game Technology PLC (IGT), global leader in gaming systems technology, on expectations for synergy between the two firms. 

Shares of DoubleUGames listed on the Korea’s tech-savvy Kosdaq market hit a new 52-week intraday high of 62,200 won ($54.51) Tuesday following the news. Shares on Wednesday closed at 56,500 won, up 7.01 percent from the previous closing of 52,800 won. 

Its shares started to rally after the Korean firm officially announced on Tuesday that it has agreed to buy a full stake in DoubleDown Interactive LLC, social casino subsidiary of IGT, at 942.6 billion won ($826.8 million). The deal value, which marks the biggest overseas acquisition of a Korean game publisher, initially sparked concerns about how the Korean company with cashable assets of less than 400 billion won would complete the deal, but expectations for future synergies between the two firms are higher than such concerns. 

Social casino integrates Vegas-like casino games including slot titles into social media platforms such as Facebook that can be played on smartphones and tablets to win virtual money instead of real money. It attracts casino players by offering an authentic Vegas experience. 

As of last year, DoubleUGames commanded 3.5 percent of global social casino market, while DoubleDown claimed 7.5 percent. Kim Ga-ram, chief executive of DoubleU Games expected the buyout would put the Korean firm at the second rank in the world’s social casino game market, with a size of around 4 trillion won led by Platika Ltd. 

DoubleDown raked in 89.7 billion won in operating profit on revenue of 316.2 billion won last year, while the Korean game publisher whose full-year 2016 revenue stood at 155.6 billion won. The acquisition is expected to largely bolster DoubleUGames’ balance sheet after it is merged into the Korean firm. 

DoubleUGames also seems to have forged ahead with its U.S. buyout, which marks the biggest overseas acquisition of a Korean game publisher, betting on the U.S. firm’s intellectual property consists of a wide array of free online slot machines. IGT, which commands 40 percent of land-based slot machines worldwide, has enhanced DoubleDown’s brand awareness since its acquisition in 2012. DoubleUGames, which doesn’t run offline slot machines, expects DoubleDown would bolster both its popularity and revenue. 

DoubleUGames will source funds from credible financial investors to buy its U.S. rival, easing concerns over its funding ability somewhat. About two-thirds, or 592.5 billion won, of the deal value will be sourced from outside investors, while rest 350 billion won is financed by DoubleUGames. Private equity firm Stic Investment will issue convertible bonds worth 210 billion won and bonds with warrant worth 90 billion won, while Samsung Securities Co. will issue senior debts worth 292.5 billion won. 

The acquisition fund would be ready by the end of this month at earliest, said DoubleUGames chief Kim.