IGT, shareholder group tout findings of independent firm in proxy fight

A proxy voting advisory firm has recommended shareholders of slot machine giant International Game Technology re-elect five of the company’s eight board members along with a candidate nominated by a dissident group of shareholders.

Stockholders are on their own in deciding who should fill the other two seats on IGT’s board as a proxy fight over control of the gaming industry’s largest manufacturer draws to a close.

Analysts from Institutional Shareholder Services issued its 31-page report late Tuesday after reviewing proxy statements from both IGT and a group headed by analyst-turned-investor Jason Ader and former IGT Chairman Charles Mathewson.

The firm suggested shareholders reject IGT’s entire slate of director candidates, but support five individually, including IGT Chairman Phil Satre, CEO Patti Hart and longtime IGT board member Bob Miller, a former two-term Nevada governor.

ISS also suggested shareholders elect Daniel Silvers, a partner in Ader Investment Management and one of three candidates for the board nominated by Ader and Mathewson. The firm’s analysts withheld support for Mathewson, who is seeking to return to the IGT board.

ISS is one of the nation’s leading independent proxy voting advisory firms, providing voting recommendations to thousands of pension and mutual funds and other institutional investors.

IGT’s annual shareholder meeting is scheduled for March 5 at the Canyon Gate Country Club.

IGT and Ader’s shareholder group, which controls roughly 3 percent of IGT’s outstanding shares, touted the release of the ISS report in recent weeks in separate statements latching onto key elements of the report that showed support for their respective positions.

“Two of IGT’s business segments, product sales and interactive, are growing well, and the company has recently been able to expand its total margins through both revenue improvements and lower operating expenses for both of these segments,” ISS analysts wrote in the report.

The analysts also said “the dissidents have demonstrated a compelling case for a greater shareholder perspective on the board.” ISS cited IGT’s “continuing difficulties in redressing the weakness of its core business segments, the uncertainty about the potential of the online diversification efforts, and the sustained shareholder doubt reflected in IGT’s persistent stock underperformance.”

Mathewson, who spent 17 years as IGT’s chairman and CEO, and Ader have been waging a proxy fight since last month to gain representation on the company’s board. They believe IGT’s current management neglected the company’s slot machine business and “alienated” casino customers. The company’s actions caused IGT’s financial performance to deteriorate, with the share price falling more than 20 percent during the past three years.

The group also criticized Hart, who took over as CEO in April 2009. Hart has been on IGT’s board since June 2006.

In the report, ISS said IGT “has not participated” in the gaming sector or the broader market recovery.

“Even given the stark underperformance of the casino equipment industry generally, IGT has lagged many of its industry peers and competitors over the past one, three, and five years,” ISS analysts said.

In a statement, IGT said the company’s share price, after adjusting for dividends, has risen 67 percent since Hart became CEO.

“IGT has invested nearly $800 million in (research and development), and has strategically deployed $750 million to enhance its core electronic gaming business, while returning more than $860 million to shareholders through dividends and share repurchases over that same period of time,” the company said.

In recommending the election of Silvers to the board, ISS said his interests would be strongly aligned with those of other unaffiliated shareholders.

“Additionally, his longer experience as an analyst and investor in the gaming industry will likely prove valuable in assessing the metrics and models by which the board evaluates strategies, progress and opportunities,” ISS analysts wrote. “Silvers’ financial background should also be beneficial in assessing any other potential acquisitions the company might consider in the interactive space.”

In a statement, IGT said ISS “misses the mark” in nominating Silvers. IGT was also disappointed that ISS did not support company directors Vincent Sadusky, Paget Alves and David Roberson, who were targeted by the Ader group.

“In our opinion, ISS does not recognize the substantial progress that this board and management team has achieved since 2009, when Patti Hart became the CEO,” the company said.

ISS called Mathewson “the most controversial nominee” on the Ader slate. The ratings service said Silvers’ “experience and skills may still be more valuable than Mathewson’s” in offering “oversight and accountability.”

Meanwhile, IGT also touted a report by Egan-Jones Proxy Services, which recommended the re-election of the company’s entire eight-person slate of directors. Analysts said voting for the management ballot was “merited.”

In January, Egan-Jones was barred by the U.S. Securities and Exchange Commission from issuing ratings on certain bonds. A source said the firm never met with Ader group to discuss the IGT proxy materials.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.
Follow @howardstutz on Twitter.