Activist Engine Capital Hunts Smaller Game With SciPlay

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Arnaud Adjler and his Engine Capital said in a June 22 US Securities & Exchange Commission 13D filing that it sent a letter to SciPlay Corp.’s (NASDAQ:SCPL) three independent directors asking them to reject an intellectual property agreement with Light & Wonder Inc. (NASDAQ:LNW), charging that Chief Executive Officer Barry Cottle has a potential conflict of interest with its partner.

Engine wrote that they’re concerned that Cottle, who is negotiating the agreement, is also Light & Wonder’s CEO.

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Ajdler noted that the letter was his second to the company. It followed a May 13 missive expressing issues with the IP arrangement. It said that since that letter, it made several unsuccessful attempts to meet company representatives.

Ajdler’s upset because Light & Wonder, SciPlay’s parent company, did a 2019 IPO of the unit that required SciPlay to pay $255 million for a perpetual licensing agreement that entitled the company exclusive access to all Light & Wonder content for three years, and non-exclusive access to after that.

“Given the related-party nature of this negotiation and these potential conflicts of interest, we request that the board form a special committee of independent directors to handle these negotiations and appoint a lead independent director to strengthen the Company’s governance.”

Based on discussions with several industry participants, Arnaud said. Engine does not believe the company should make any more payments.

“To protect the value of minority shareholders’ investment in the company and ensure that Light & Wonder does not unfairly wield its outsized influence over SciPlay in these negotiations, we believe the independent members of the board must immediately step in,” Arnaud wrote.

SciPlay, with a $1.78 billion market capitalization, rose three cents, or 0.22%, on Wednesday and closed at $13.80, near the middle of its Wednesday range. The stock treaded between $22.29 and $10.75.

Light & Wonder shares fell 3.7 percent.

SciPlay’s 18 cents a share first quarter earnings missed the market’s 22 cent estimate by almost 20%. In the year ago quarter, the company earned 21 cents a share. Both quarter's results are adjusted for one time items.

Over the last four quarters, SciPlay’s managed to beat consensus EPS and revenue estimates only once for each.

SciPlay shares have lost about 18.1% since the beginning of the year versus the S & P 500’s roughly 19% retreat.

Article by Greg Morcroft, Fintel