The easiest way to tamper with share prices is to announce some sort of management restructuring. Shareholders often react to change in management or majority share ownership by either pulling out or buying more. The exact move depends on past performance and projected performance as judged from history.
A recent example in the stock market to this regard is the surge in value of shares for online gambling software supplier Playtech (PTEC). A 55% change in share price was reported on Monday following the company’s announcement that it had signed an acquisition deal in which its operations would be taken over by Aristocrat. The acquiring firm is based in Australia and the agreement was that the share price during the acquisition would be 680p.
Upon the announcement of an acquisition, most shareholders imagine a scenario where their money will be lost. A drop in interest in company shares coupled by a mass sellout of existing shares is what causes a drop in share prices. This is a perfect example of the power of demand and supply market forces in dictating prices within a free market.
The price per share as quoted by Playtech is supposed to represent premiums in the tune of 58.4% during the closing price on the last day of the week. This represents a share premium of 60% in relation to the volume weighted average cost per share over a period of three months. The current acquisition places the value of Playtech to be £2.1 billion without inclusion of liabilities and £2.7 billion if the debt factor is considered.
What we cover
Terms of the acquisition
There are many different forms of acquisitions and this dictates the payout for the acquiring company. While some companies prefer to split ownership with money going into direct investment and part ownership going to the stocks, Playtech wants Aristocrat to make full cash acquisition. This decision originated from the board of Playtech although the inspiration behind it is not clear.
Aristocrat is a global content and software company that supports various online casino platforms around the world. The company is listed on the Australian securities exchange and boasts of a market capitalization of approximately £15.8 billion.
A stronger team
The new management is not about to let go of the manpower they found at Playtech because this is the team that holds the company’s current status quo. In their view, Aristocrat is optimistic that combining two dynamic work teams is going to be beneficial to the future health of the organization. It is a good thing that the acquisition is happening at a time when the New Jersey market is witnessing a lot of new business formations. Businesses are merging while others are leveraging each other’s services and products to reap better returns from regulated gambling markets around the country.
Having already established a grand reputation for its high quality offerings in Australia, Aristocrat is now looking for new markets in which they can scale into. Combining two companies in every regard provides the drivers of this strategy with relevant material for scaling the international online betting space.
It is easy to see why Aristocrat is this keen on acquiring the business that Playtech currently runs; the entire gambling industry is keen on growing the internet gambling portfolio in whatever category they can manage. The value of the sports betting markets in New Jersey is approximately $70 billion. Multiple players operating within the legal betting space are looking for ways to always be ahead of the completion.
Having tech and app suppliers at you beck and call means that a brand will be able to measure their gambling tools against those of their competitors. At the moment, Aristocrat is eager to hit the NJ market with distribution opportunities for online systems. With an additional income stream, the Australian based company will be complimenting Playtech as it boosts content and growth.
That is not all – Aristocrat reasons that this is a combination which will grant both parties lucrative financial returns by increasing income from shares by low to medium range growth in single digit. At the same time, the performance of the share during the first financial year is expected to still be of a single digit post synergy growth.
Speaking on the acquisition deal that has already been laid out for execution, the Director of AJ Bell, Russ Mould argued that gambling might not be popular with some investors but PlayTech is doing things differently. It is important that investors are aware of the fact that PlayTech is not directly involved in the betting business; their role is to facilitate gambling operators by providing the necessary tools and software.
Some of the markets that are thriving from gambling out of the state of New Jersey include London where there has been visible growth. It is no wonder that foreign investors are camping at the doorstep of Playtech to get a bite out of the lucrative nature of its business. The business has been a little untidy over the last few months leading to a loss of focus from the core team. It is in the recent efforts to have its activities streamlined that Aristocrat noticed the potential it had.
Conclusion
Regulus, which is gambling consultancy firm based in the UK, commented on the compelling nature of the acquisition deal. While all might seem rosy from the outside, it is important for shareholders to be cognizant to the presence of challenges ahead of them. According to the consultancy firm, the top down deal model may appear to solve a lot of operational problems for the businesses involved but execution is going to be a daunting task. The greatest setback and which might serve as a major disadvantage in the business front is the fact that Aristocrats lack relevant experience for the kind of business they have acquired. All eyes will be glued to the screen where the financial will be posted and they better give the perception that Aristocrat has everything under control.
