Shares in Playtech (PTEC) tumble 3.8% to 777p after the gambling software developer announces a share placingto fund its £459.6 million acquisition of troubled trading firm Plus500 (PLUS:AIM).
The £2.4 billion cap is placing 29 million shares to raise £250 million, representing around 9.9% of its issued capital.
The money raised could also be used to acquire a midsize direct to consumer broker over which TradeFX - the foreign exchange broker Playtech acquired last month - has an option to acquire.
Playtech founder Teddy Sagi is buying 33.6% of the new shares through his investment platform Brickington, which currently owns 33.6% of Playtech.
Playtech’s offer for Plus500 has attracted a lot of controversy, with hedge fund giant Odey Asset Management - Plus500’s biggest shareholder - describing it as ‘an opportunistic bid exploiting current regulatory issues and risks’.
Odey plans to reject the bid but the takeover could still go ahead. Both companies are Israeli and the takeover laws there only require 50.1% of shareholders to approve the deal. Plus500’s management, which holds 35% of shares, has already approved it.
We think the deals are a good move for Playtech because they will immediately give it scale and exposure to a fast growing new vertical and diversify the business away from traditional online gambling.
Northland Capital analyst Michael Campbell says the equity fund raise and the new debt facilities the business is in the process of securing should result in a more efficient capital structure.
‘The price to earnings rating for Playtech is toward the top of the peer range at circa 17-times full year 2015 consensus earnings, however the business has significant firepower with which to continue to grow into new markets and new product verticals such as the financial sector,’ he adds.
Even if the bid does collapse there is still an investment case for owning Playtech shares given its strong position in the gambling sector and other opportunities in financial markets.
Revenue in Playtech’s core business rose by 25% in the second quarter and TradeFX is also showing signs of strong growth with year-on-year revenue up 72% to the end of May.
