GSN FUN Status Update May 2008 Confidential Status
- Slides: 8
GSN & FUN Status Update May 2008 – Confidential –
Status and Alternatives • Prior to David Goldhill’s arrival, SPE was considering an exit of GSN – GSN’s core business was languishing – Governance issues associated with a 50/50 venture limited flexibility • Our interest in GSN increased and governance concerns receded when: – David Goldhill arrived, began to reinvigorate GSN, and significantly improved earnings – GSN/FUN merger appeared to offer further expansion for the business on economically compelling terms, with limited risk, and no negative impact on governance • Diligence on FUN implies a deal may be feasible, but is not clearly compelling – Legal risks of skill games can be managed but not eliminated – We do not yet have an indication that Tokyo is comfortable with skill games – Although not obstructing the deal, IGT would not be enthusiastic – Liberty’s $200 MM asking price is at best “fully valued, ” potentially overvalued by up to $50 MM • A GSN/FUN partnership (rather than merger) can be structured to protect our financial interests, but is unattractive as it will make management more cumbersome • Given these facts, we have 3 alternatives – Acquire ½ of FUN at $200 MM, assuming significant financial risk and some legal risk – Negotiate FUN’s price to $150 -$175 MM, assuming some legal risk – Revisit an exit of GSN – Confidential – 2
• The slide J&J already created “FUN Forecasts an Aggressive Revenue CAGR of 52% from 2007 -2010” – Confidential – 3
• The slide J&J already created “FUN’s 2008 Revenue Targets Represent a 3 x Increase Over 2007 Performance” – Confidential – 4
$200 MM for GUN is At Best “Fully Valued; ” May be Overvalued by $50 MM Case Assumptions ’ 07 -’ 10 Revenue CAGR NPV Considerations FUN Management FUN hits all financial targets with the exception of acquiring free games companies 47% $252 Assumptions are aggressive and appear unrealistic Liberty View at Acquisition FUN EBITDA performance is in-line with projections included in proxy Liberty issued at acquisition 35% $204 Existing Revenues + Aggressive View of “Speculative” Q 4 revenues are annualized Modest haircuts to speculative revenues (see next page) 34% $198 Existing Revenues + Conservative View of “Speculative” Q 4 revenues are annualized Significant haircuts to speculative revenues (see next page) 27% $150 Let’s nudge up from $135 Industry Growth FUN revenues grow in-line with overall casual game market growth 20% $102 – Confidential – Assumptions are possible and would imply Liberty’s price represents “Full and Fair Value” With conservative assumptions, fun is overvalued If FUN tracks the industry, it is seriously over-valued 5
• Appendix – Confidential – 6
• Show their revenue build, our classification of revenues as “High Likelihood”, “Medium, ” Low, and associated haircuts – Confidential – 7
• Show the resulting revenue forecasts and NPVs (as you already included in your two page “mystery envelope” – Confidential – 8
