(Bloomberg) -- An investor in Light & Wonder Inc. and its subsidiary Sciplay Corp. is urging the gaming companies to merge in an effort to improve value for their shareholders. 

Engine Capital owns a stake of more than a 5% in Sciplay and a smaller stake in Light & Wonder, formerly known as Scientific Games Corp. The New York-based investment firm said in a letter to the boards of both companies Monday that it believes Light & Wonder purchasing the 19% of Sciplay that it doesn’t already own would simplify the company’s structure, reduce the overhang on its shares, and provide immediate value to Sciplay’s shareholders. 

“If a deal can’t be reached between both companies or if Light & Wonder is no longer interested to acquire Sciplay, we don’t believe the status quo is desirable and we would then encourage Sciplay to start a review of its strategic alternatives and look for a buyer with the blessing of Light & Wonder,” Engine Capital Managing Partner Arnaud Ajdler and partner Brad Favreau said in the letter, a copy of which was reviewed by Bloomberg News. 

A representative for Light & Wonder and Sciplay declined to comment.

Light & Wonder creates content and products for casino gambling including slot machines. It spun off its social gaming subsidiary, Sciplay, in 2019.

Earlier Attempt

Engine Capital noted that the two companies attempted to merge in 2021 in a stock-for-stock deal before talks fell apart. It argues in Monday’s letter that a transaction for the remaining interest in Sciplay for $15 to $16 a share in cash would be attractive for both companies. It noted that Light & Wonder could use the cash on Sciplay’s books to finance the transaction. 

The current structure prevents Light & Wonder from accessing Sciplay’s significant free cash flows and from making optimal capital allocation decisions, Engine Capital said. A deal would allow Light & Wonder to accelerate its own share buyback program, Engine Capital said. 

A transaction would allow Sciplay shareholders to monetize their investment at a fair price, which is unlikely to happen in the public market, according to the letter.  That would also give Light & Wonder direct access to Sciplay’s free cash flows, which would allow it to accelerate share repurchases without having to increase its leverage or issue new shares, Engine Capital contends.

Engine Capital has agitated for changes at Sciplay before, including this year making two nominations to its board that it later withdrew. It has also raised concerns about the governance issues at the company. 

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