Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>On the 2 February, <a href="https://www.smartkarma.com/entities/playtech-plc" target="_blank" data-smartkarma-citation="entities:22099:1" rel="noopener">Playtech Plc (PTEC LN)</a>'s shareholders voted down <a href="https://www.smartkarma.com/entities/aristocrat-leisure-ltd" target="_blank" data-smartkarma-citation="entities:10303:1" rel="noopener">Aristocrat Leisure (ALL AU)</a>'s £2.1 billion Offer.</li>
<li>The Offer failed after Playtech was unable to engage with a block of Asia-based investors who owned ~28% of the company.</li>
<li>As a developer of online casino games, Playtech is an obvious target. Reportedly its second-largest investor and two Playtech CEOs - former and current - are piecing together a deal. </li>
</ul>


On the 2 February, Playtech Plc (PTEC LN)'s shareholders voted down Aristocrat Leisure (ALL AU)'s £2.1 billion Offer.
The Offer failed after Playtech was unable to engage with a block of Asia-based investors who owned ~28% of the company.
As a developer of online casino games, Playtech is an obvious target. Reportedly its second-largest investor and two Playtech CEOs - former and current - are piecing together a deal. 


European Event-Driven Analyst

Jesus Rodriguez Aguilar

<ul>
<li>Court and EGM meetings are scheduled 2 February. Aristocrat is the only suitor remaining.  Some investors in Playtech who anticipated a bidding war aren't too keen to support the deal.</li>
<li>The Board threatens with a break-up and auction of both Snaitech and the B2B white label software division. Analysts believe that the business is worth more than the current offer.</li>
<li>Reiterate long PTEC LN, TP 680/share (Aristocrat offer), with the potential upside risk of a sweetened offer to placate some investors, or a break-up.</li>
</ul>


Court and EGM meetings are scheduled 2 February. Aristocrat is the only suitor remaining.  Some investors in Playtech who anticipated a bidding war aren't too keen to support the deal.
The Board threatens with a break-up and auction of both Snaitech and the B2B white label software division. Analysts believe that the business is worth more than the current offer.
Reiterate long PTEC LN, TP 680/share (Aristocrat offer), with the potential upside risk of a sweetened offer to placate some investors, or a break-up.


Aristocrat/Playtech: Deal Uncertainty but the Shares Are Inexpensive

<ul>
<li>Since <a href="https://www.smartkarma.com/entities/playtech-plc" target="_blank" data-smartkarma-citation="entities:22099:1" rel="noopener">Playtech Plc (PTEC LN)</a> started putting its house in order, it is receiving a lot of interest, in a sector that has attracted M&amp;A activity in 2020 and 2021.</li>
<li>Assuming the potential offer is at an EV of £3 billion, the potential offer price would be c. 830p. Shares offer an 8.9% 22e FCF yield.</li>
<li>I have revised my valuation following interest in the company. Median implied EV/Fwd EBITDA TP is 841p, c.24% higher than offer from Aristocrat, in line with that suggested by Gopher.</li>
</ul>


Since Playtech Plc (PTEC LN) started putting its house in order, it is receiving a lot of interest, in a sector that has attracted M&amp;A activity in 2020 and 2021.
Assuming the potential offer is at an EV of £3 billion, the potential offer price would be c. 830p. Shares offer an 8.9% 22e FCF yield.
I have revised my valuation following interest in the company. Median implied EV/Fwd EBITDA TP is 841p, c.24% higher than offer from Aristocrat, in line with that suggested by Gopher.


<a href="https://www.smartkarma.com/entities/playtech-plc" target="_blank" data-smartkarma-citation="entities:22099:1" rel="noopener">Playtech Plc (PTEC LN)</a>'s shareholders have won big time at the casino table. On late Sunday 17 October, Playtech, a FTSE 250 white label gambling-technology company, said that it has agreed to a £2.1 billion takeover from Australian slot machine manufacturer <a href="https://www.smartkarma.com/entities/aristocrat-leisure-ltd" target="_blank" data-smartkarma-citation="entities:10303:1" rel="noopener">Aristocrat Leisure (ALL AU)</a> through its subsidiary Aristocrat (UK) Holdings Ltd. The acquisition is to be effected by means of a scheme of arrangement under Part X of the Isle of Man Companies Act 2006. Aristocrat's offer is its fourth bid, but the first one to be made public.
<div>
Under the offer, accepting shareholders of Playtech will get 680p/share in cash, cum dividend, a 58% premium to the closing price of 429.20p on Friday 15 October.
</div>
The offer puts an enterprise value on Playtech of £2.7 billion. Gambling companies are rushing to profit off the deregulated gambling market in the USA, which is forecast to become one of the biggest betting and gaming markets in the world. The USA online gambling market was valued at USD 2,178 million in 2020, and it is estimated to have a CAGR of 17.34% during the period 2021-2026 (source: Mordor Intelligence). Online betting is expected to be the fastest-growing segment during 2021-2026. Software providers are embarking on M&amp;A to achieve consolidation and optimise their product portfolio. See <a href="https://www.smartkarma.com/insights/mgm-s-prospective-offer-for-entain" target="_blank" data-smartkarma-citation="insights:46752" rel="noopener">MGM's Prospective Offer for Entain</a> and <a href="https://www.smartkarma.com/insights/enlabs-entain-raised-offer" target="_blank" data-smartkarma-citation="insights:48838" rel="noopener">Enlabs - Entain: Raised Offer</a> and <a href="https://www.smartkarma.com/insights/draftkings-entain-cash-and-shares-approach" target="_blank" data-smartkarma-citation="insights:57963" rel="noopener">DraftKings/Entain: Cash and Shares Approach</a>. The Americas are driving the growth of Playtech.
The deal should allow Aristocrat to gain scale and increase offering in both Aristocrat’s casino business and the online sports betting market in the USA, where Playtech has recently expanded in response to more relaxed rules allowing online gambling and sports betting. Aristocrat expects to realise additional EPS in the high single digits in the first year after purchase.
Playtech's est. WACC is 9.2% vs a LTM ROIC of 4.6%. This means that the company destroys value as it grows. Aristocrat est. WACC is 9.6% vs. a LTM ROIC of 4.5%. Like Playtech, it destroys value as it grows. This may be the reason why Aristocrat is seeking scale.
I value Playtech using a SOTP model (gaming business valued at sector multiples and Financials business in line with financial trading peers and call options related to Latin America structured agreements at book value). My estimate of fair value is 590p.
Paraphrasing the Chairman of Playtech, the deal provides an attractive opportunity for shareholders to cash the chips. This is a done deal, as shareholders are highly likely to approve it, in my view. Gross spread is just 0.4%. I would wait for share price weakness before establishing a position.
Playtech was in the process of streamlining and divesting poor performing divisions (Finalto), thus becoming more attractive and the latest London-listed gambling company to be targeted for a takeover, as operators rush to build scale and break into the USA. 2021 has seen the takeover of <a href="https://www.smartkarma.com/entities/william-hill-plc" target="_blank" data-smartkarma-citation="entities:22210:1" rel="noopener">William Hill (WMH LN)</a> (<a href="https://www.smartkarma.com/insights/william-hill-caesars-almost-done-deal-trading-above-terms" target="_blank" data-smartkarma-citation="insights:43809" rel="noopener">William Hill - Caesars (Almost) Done Deal, Trading Above Terms</a>), and two attempts on <a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a>.

Playtech Plc (PTEC LN)'s shareholders have won big time at the casino table. On late Sunday 17 October, Playtech, a FTSE 250 white label gambling-technology company, said that it has agreed to a £2.1 billion takeover from Australian slot machine manufacturer Aristocrat Leisure (ALL AU) through its subsidiary Aristocrat (UK) Holdings Ltd. The acquisition is to be effected by means of a scheme of arrangement under Part X of the Isle of Man Companies Act 2006. Aristocrat's offer is its fourth bid, but the first one to be made public.

Under the offer, accepting shareholders of Playtech will get 680p/share in cash, cum dividend, a 58% premium to the closing price of 429.20p on Friday 15 October.

The offer puts an enterprise value on Playtech of £2.7 billion. Gambling companies are rushing to profit off the deregulated gambling market in the USA, which is forecast to become one of the biggest betting and gaming markets in the world. The USA online gambling market was valued at USD 2,178 million in 2020, and it is estimated to have a CAGR of 17.34% during the period 2021-2026 (source: Mordor Intelligence). Online betting is expected to be the fastest-growing segment during 2021-2026. Software providers are embarking on M&amp;A to achieve consolidation and optimise their product portfolio. See MGM's Prospective Offer for Entain and Enlabs - Entain: Raised Offer and DraftKings/Entain: Cash and Shares Approach. The Americas are driving the growth of Playtech.
The deal should allow Aristocrat to gain scale and increase offering in both Aristocrat’s casino business and the online sports betting market in the USA, where Playtech has recently expanded in response to more relaxed rules allowing online gambling and sports betting. Aristocrat expects to realise additional EPS in the high single digits in the first year after purchase.
Playtech's est. WACC is 9.2% vs a LTM ROIC of 4.6%. This means that the company destroys value as it grows. Aristocrat est. WACC is 9.6% vs. a LTM ROIC of 4.5%. Like Playtech, it destroys value as it grows. This may be the reason why Aristocrat is seeking scale.
I value Playtech using a SOTP model (gaming business valued at sector multiples and Financials business in line with financial trading peers and call options related to Latin America structured agreements at book value). My estimate of fair value is 590p.
Paraphrasing the Chairman of Playtech, the deal provides an attractive opportunity for shareholders to cash the chips. This is a done deal, as shareholders are highly likely to approve it, in my view. Gross spread is just 0.4%. I would wait for share price weakness before establishing a position.
Playtech was in the process of streamlining and divesting poor performing divisions (Finalto), thus becoming more attractive and the latest London-listed gambling company to be targeted for a takeover, as operators rush to build scale and break into the USA. 2021 has seen the takeover of William Hill (WMH LN) (William Hill - Caesars (Almost) Done Deal, Trading Above Terms), and two attempts on Entain (ENT LN).

Aristocrat/Playtech: Cashing in the Chips

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<a href="https://www.smartkarma.com/entities/aristocrat-leisure-ltd" target="_blank" data-smartkarma-citation="entities:10303:1" rel="noopener">Aristocrat Leisure (ALL AU)</a> aims to raise around US$1bn (A$1.3bn) via a renounceable entitlement offer to partly fund its acquisition of <a href="https://www.smartkarma.com/entities/playtech-plc" target="_blank" data-smartkarma-citation="entities:22099:1" rel="noopener">Playtech Plc (PTEC LN)</a> for a total enterprise value of around A$5bn.Past deals undertaken by Aristocrat have generally done well and the stock has a good track record. In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

Aristocrat Leisure (ALL AU) aims to raise around US$1bn (A$1.3bn) via a renounceable entitlement offer to partly fund its acquisition of Playtech Plc (PTEC LN) for a total enterprise value of around A$5bn.Past deals undertaken by Aristocrat have generally done well and the stock has a good track record. In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

Aristocrat Leisure's Playtech Acquisition, Entitlement and Shortfall

United Kingdom

Playtech plc develops unified software platforms and content for the online, mobile and land-based gaming industry.  The Company's gaming applications include casino, poker, bingo, sports betting, live gaming, casual and fixed odds games.

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Playtech Plc (PTEC LN)

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Shareholders are highly likely to cash in the chips, in my view. Gross spread is just 0.4%. Wait for share price weakness. London-listed gambling...

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Aristocrat Leisure's Playtech Acquisition, Entitlement and Shortfall

Aristocrat Leisure (ALL AU) aims to raise around US$1bn via a renounceable entitlement offer to partly fund its acquisition of Playtech Plc (PTEC...

Sumeet Singh

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