Playtech is the world’s largest supplier of gambling and online gaming software, and over the past year, there has been almost constant talk of mergers with various companies. Playtech has been an established software provider for some of the best online casinos in the UK so it makes sense that they’re a company people are interested in being involved with. As such, there have been some very high profile offers, but none more so than Aristocrat Leisure’s $4 billion offer.
Who Are Aristocrat Leisure?
Aristocrat Leisure is known for being one of the largest gambling hardware manufacturers – if you’ve played on a slot machine then you might have used an Aristocrat Leisure product. Popular games under the Aristocrat Leisure brand include Dollar Storm, Buffalo Gold Revolution and Dragon Link – all of which have been successful across international online gambling platforms. Being such a large company, when Aristocrat Leisure submitted an offer to take over Playtech, the entire industry wanted to watch.
The Playtech Takeover
The Aristocrat takeover of Playtech seemed like a done deal, but after months of negotiating the hardware giant was forced to walk away from the deal after Playtech shareholders voted against the sale. So, what happened?
The collapse of this deal is just one in a series of events that have had investors on the edge of their seats. While the companies were negotiating Playtech received several other offers that ultimately saw the share price swell to much higher than what Aristocrat had originally offered. It’s possible that Aristocrat couldn’t afford the new share price which made the deal unattractive for Playtech shareholders, but what’s more likely is that the shareholders saw more value in the company than before the talks started. The deal flopped when only 55% of shareholders cast their vote in favour of the merger – well below the 75% that was needed to approve the deal.
What Caused The Collapse?
One of the biggest issues with the shareholder voting rules is that several companies hold a large number of shares, and while they don’t have a majority it’s enough to significantly influence the vote. One Hong Kong investment firm owns 28% of Playtech. Aristocrat Leisure complained that a number of material investors hadn’t previously shared their views or engaged in discussion voted against the merger. This meant that the majority of shareholders were overruled by the minority because they owned more shares. As a result, the UK Takeover Panel have launched an investigation to see if the larger investors were acting jointly, but they haven’t announced any findings yet.
In an interview with the Financial Times, Playtech chairman Brian Mattingley said that “he wasn’t disappointed because the process had highlighted the fact that the company is valuable”. The company had a history of struggling to attract buyers because of the complicated operations structure.
In a separate interview, the Financial Review spoke to Trevor Croker, the Chief Executive of Aristocrat Leisure. Croker insisted that the company was in no rush to find a replacement for the failed Playtech deal, citing the fact that real money gambling (RMG) is currently only legal in 7 US states. The Chief Executive stated that they were going to take time to invest in their own business and look at creating deals with alternative companies.
What Does This Mean For The Future?
Understandably a large part of the conversation as a result of the failed deal is what’s going to be next for both companies. Are they going to look for other brands to potentially merge with, or focus on their own in-house development first? It is obvious to anyone paying attention that the mobile gaming industry is growing and that this isn’t likely to change any time soon. Both companies are doing exceptionally well in their own right and the chances are will continue to do so. Whether we’ll see another, similar takeover bid in the future remains to be seen. However, for now, it is likely the companies will continue on their own internal growth and come back with a new plan another time.
What Do The Companies Have To Say?
When pressed on their future plans, the two companies had very different answers.
Playtech have announced that they’re considering selling off some of their assets separately, breaking the company up into pieces and downsizing as a result of the failed buy out. This doesn’t necessarily point to the company having trouble, however. Mattingley said that the process had highlighted the value of the company, so it may be that they’re selling while the interest (and share price) is still high. Although this is something they have talked about, it is unlikely to be something that they want to rush, after all the collapse of a 2nd deal would most certainly make for some interesting headlines.
Aristocrat CEO said that the company wasn’t in a hurry to find a replacement for the Playtech deal, saying that they have the capacity to both invest in their own business and pursue alternatives. While Croker refused to give any details, he did say that the core business was still performing well. Despite this, the share price has dropped significantly as a result of the news and they’ll be keen to turn this around and show that the company is able to bounce back and stand on its own two feet.
At the moment it’s difficult to predict what’s next for both companies – Aristocrat may buy some of the pieces of Playtech to further expand their own offering or they could look elsewhere and buy a smaller software company as a whole. At the moment it’s still early days and both companies are likely to take a moment to regroup before making any firm decisions. One thing for sure is that the industry continues to grow and be successful and as two names already secure in this sector, if their next move is the right one then it could prove to be very lucrative and an important step in their success story.
