Citigroup notes that GTECH, a wholly-owned subsidiary of Lottomatica announced that the company has agreed to acquire Creative Games Int'l, a provider of instant lottery tickets based in the US (sale price not disclosed).
GTECH's entry into the instant ticket biz is not a surprise as co had expressed an interest to enter the mkt post-Lottomatica. On the margin, a new competitor with deep pockets, but limited experience, is a modest negative for Scientific Games (NASDAQ:SGMS).
Short-term impact should be minimal due to long-term nature of instant contracts & limited no. of SGMS' instant contracts up for rebid in the near-term. That said, longer-term impact could be more meaningful, but manageable in our opinion. Italy contract (w/LTO) potentially at risk, but not until 2010.
GTECH may find it difficult to penetrate the market due to SGMS' strong product offerings (innovative products, proprietary brands, & co-op services) & industry leading growth rates and CGI's limited market share (< 5% in the US).
Notablecalls: In case there is some weakness in SGMS shares today, now you know why. Dont expect it, though, as the impact on SGMS seems to be too small.