Supply and demand: Unpicking Playtech's takeover saga

The 680p-a-share offer for Playtech from Australia-listed gaming machine giant Aristocrat appeared a simple enough deal when the news first broke. Priced at a premium of over 50% to the share price the day before the bid, it promised Aristocrat a quick route to gaining scale in the real-money online realm, an area where it was lacking much in the way of a footprint.

Crucially, it also offered the largely machine-based provider a route into US igaming, albeit via a nascent foothold that has seen Playtech completing platform deals in New Jersey and Michigan. Yet, as with a lot related to Playtech, nothing is ever that simple and the investor case for accepting the offer from Aristocrat soon came under pressure.

What tangled webs we weave

First there was the Finalto complication. As part of its offer, Aristocrat wanted Playtech to complete the sale of its financial trading business to Gopher Investments. Significantly, the Finalto deal itself had been a complicated process after Gopher had gate-crashed a previous recommended offer from an Israeli-based consortium. True to form, after the Aristocrat offer, the Hong Kong-based Gopher Investments intervened again, making a higher offer for Playtech in early November. But this was just a prelude. Soon after, a third bidder emerged in the unlikely form of ex-Formula 1 boss Eddie Jordan, who teamed up with ex-Scientific Games and OpenBet executive Keith O’Loughlin to launch another rival bid under the name JKO Play. But before investors could truly get a sight of a three-way bidding war, Gopher dropped out saying it would concentrate on the Finalto process.

It left us with two names in the hat, but it was clear in December that there were further complications. One issue was Playtech’s long-standing relationship with Mexico-based Caliente. Reports soon emerged that Caliente was in talks with the Tekkorp SPAC, led by former SG Digital CEO Matt Davey, about a merger with Caliente’s online offering, CaliPlay. This deal would see CaliPlay launch as a Spanish-language brand in the US.

The complication is that Playtech has an option to buy a 49% stake in CaliPlay. Valuing that portion of the business ahead of any buyout of Playtech has proved understandably difficult, and reports suggested Caliente would buy out Playtech’s potential stake in CaliPlay and offer a contingent value right (CVR) in return. That would then, so the story goes, clear the way for a final JKO offer which it was reported would be pitched at 750p-a-share, or some 70p above the Aristocrat bid.

Over Christmas and into the New Year, the market was expecting an imminent JKO bid. But having been granted an extension to finalise its offer by the London Stock Exchange early in January, Playtech subsequently announced JKO had pulled out of the race.

At this stage, the emergence of a group of Asia-based investors looms large in the story. Between them, a group including Les Ambassadeurs casino and Birmingham City owner Paul Suen Cho Hung had built up a 25%+ stake in Playtech and it appeared they were set to block any deal agreed between Aristocrat and the Playtech board.

The Asian connection

Mention of Playtech and Asia is always a touchy subject. The company itself has never been wholly clear about the extent or precise origin of its revenue that comes from the region. The Aristocrat presentation when the offer was announced suggested nearly 17% of Playtech’s revenue came from Asia.

In response to a question about whether some of Playtech’s unregulated revenue was outside of Aristocrat’s “risk appetite”, Trevor Croker, Aristocrat CEO, indicated the company would do a “full review of our risk appetite against each jurisdiction and make decisions following that in terms of which markets to exit”. As it turned out, before Aristocrat got to that point, the emergence of the Asia-based investor block was to spell doom for the Aristocrat offer.

Playtech made it clear in the days leading up to the 2 February shareholder vote that it had been unable to ascertain from this investor block – most of which had bought into the company after the Aristocrat bid emerged – whether they would be supporting the board in accepting the offer. The day of the vote came and in the end the offer was rejected by 45% of shareholders, far in excess of the necessary 25% blocking vote.

What happens next?

At this point, it is already clear via reports in the press that Playtech is considering its options. One is a breakup, although sources suggest this is more about a refocusing on B2B as the major move would involve the sale of the Snaitech B2C business in Italy, with the ever-acquisitive Entain as the name in the frame.

But first, Playtech must once again deal with another move emanating from Hong Kong. Again, it involves Gopher, this time in a more oblique fashion after Playtech said it was approached by an affiliate investment firm called TTB Partners which was looking at a potential bid “on behalf of an investor group to be formed and advised by it”.

And that, tantalisingly (or frustratingly), is where we stand right now. The only certainty appears to be that Playtech will be involved in some form of M&A at some point in the coming weeks and the future of its Asian business will be central to that.

Analysts willing to comment on the current situation are notably thin on the ground, but one willing to talk off the record pointed out that it was possible some investors felt there was more to be gained from hanging on to – and potentially expanding on – Playtech’s current position in the Far East.

This is working on the assumption that the revenue Playtech receives from this part of the world is only a small slice of the potential rewards. Which all suggests a strategic and indeed almost philosophical overlay to what is already a complicated saga where the pathway to a resolution remains shrouded in mist. So, until this time next month then…