Calif. lobbyist's indictment is good news for embattled GTECH


Things have been a bit grim in recent months at GTECH Holdings Corp., a maker of computerized lottery systems.

In December, federal prosecutors were reported to be investigating a contract to the company from Maryland. Last month, GTECH stock sank when New Jersey officials postponed approval of keno, one of the company's most profitable lottery systems.

Days later, the stock slid an additional 12 percent when California decided to review its bidding process before renewing a GTECH contract.

Finally, on Friday, GTECH got some good news: A lobbyist the company hired in California was hit with a federal racketeering PTC indictment for allegedly bribing a state senator to get his vote on some lottery legislation.

Being linked to criminal activities -- particularly in a business as politically sensitive as providing lottery computer systems to governments -- can be the kiss of death for a company.

And that fear was reflected in the market's reaction, which pushed GTECH stock down as much as 6 percent more after the indictment.

But the indictment, as worded, was actually positive for the gamingcompany, if only because it was nowhere near as negative as some had feared. And investors appeared yesterday to be starting to recognize that: GTECH shares closed up 25 cents, at $35.125, in New York Stock Exchange trading.

How could the indictment be good news for the stock? Because the investigation of the lobbyist, Clay Jackson, has been hanging over GTECH since it went public in July.

By disclosing details of the investigation of its lobbyist in its filings with the Securities and Exchange Commission, the company raised questions about whether it or its officers might be indicted in the bribery scandal involving state Sen. Alan Robbins.

But GTECH was only one of several of Mr. Jackson's corporate clients whose money was funneled to Mr. Robbins for bribes, according to the indictment. And the companies had no idea their money was going for bribes. Indeed, the indictment refers to the companies that provided the money as "unsuspecting lobbying clients."

Those words appear to clear GTECH of any responsibility for the crimes that took place. "This indictment is actually good news," said Kurt Feuerman, an analyst who follows the company for Morgan, Stanley & Co. "It should be viewed as putting the whole thing to rest."

Clients of the lobbyist included B. F. Goodrich, Anheuser-Busch and other large companies, Mr. Feuerman said, and any of those companies whose money was used were also victims of their lobbyist, if the indictment proves true.

At the same time, GTECH, which went private in a leveraged buyout in 1989 led by its management and a division of Donaldson, Lufkin & Jenrette Securities Corp., has had a series of business developments that would indicate that its business is still strong.

Just this week, the company announced a series of contracts and contract extensions, including a deal to provide on-line equipment and services to the New York state lottery, and an extension of GTECH's agreement with the Ohio lottery.

Of course, GTECH, based in West Greenwich, R.I., faces other potential problems, including the examinations of the bidding processes in Maryland and California.

Yesterday, the Maryland Senate approved a bill that would kill the state's keno game, which is run by GTECH, though the House is not expected to go along with the measure.

Analysts say those issues are not likely to hurt GTECH's bottom line. And certainly investors in the company should know the one principle anyone in the lottery business understands: You can't win if you can't take the suspense.

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