1st Jun 2015 09:57
LONDON (Alliance News) - Playtech PLC on Monday said it has reached an agreement to acquire troubled online contracts-for-difference trading platform Plus500 Ltd in a GBP459.6 million deal, a deal which comes after a month which saw Plus500 shares plunge after the company had to suspend some of its UK customer accounts to address its anti-money laundering processes.
Under the takeover deal, Playtech, which provides software and services for the gaming industry and which has recently moved into the foreign exchange trading sector, will pay 400 pence per share for Plus500. Shares in Plus500 closed at 370 pence on Friday, having dropped by nearly 50% over the course of May owing to the concerns about the account suspensions.
Playtech shares were down 2.8% to 805.50 pence on Monday, the worst performer in the FTSE 250, while Plus500 shares were up 1.8% to 376.00 pence.
FTSE 250-listed Playtech said that since the acquisition of TradeFX, an online contracts-for-difference and binary options broker and trading platform provider, for EUR458 million in April, it is pursuing a strategy of aggregating businesses within the sector and said Plus500 is a natural fit for this strategy and will add scale to the TradeFX business.
In addition to the TradeFX deal, Reuters reported last month that Playtech has struck a deal to buy currency trading platform AvaTrade for USD100 million. The acquisition would mean Playtech had exercised an option given to it as part of the TradeFX's acquisition, though the company has yet to confirm the deal.
Playtech said the Plus500 acquisition will be immediately earnings accretive and said it expects the deal to close by the end of September.
"Having recently completed the acquisition of TradeFX, the opportunity to acquire Plus500 will prove transformational for our ambitions to expand Playtech's wider offering. As an immediately earnings enhancing acquisition, the combination of the two businesses is compelling, enabling us to apply our market-leading products and services to the enlarged financial trading business as we continue to execute our growth strategy for the group," said Playtech Chief Executive Mor Weizer.
Shares in Plus500 tumbled in May after the company confirmed that the UK's Financial Conduct Authority required it to verify its customers in the UK and ask them for documentation in doing so. A fortnight ago, the company had to confirm it had paid its final and special dividend following market speculation it had not done so, another contributor to its share price fall.
The company last week defended its accounting policies, having become a target for short-sellers who have questioned its business practices and accounting.
"The board is aware of recent press and blog commentary regarding Plus500's accounting policies and business model and rejects the assertions made as misrepresentative and baseless. The board reiterates that the company's accounts, along with those of its subsidiary, Plus500UK Ltd, have received unqualified audit opinions from PwC and the directors are comfortable with the disclosures made therein," Plus500 said in its trading update published on Wednesday.
"In response to the specific issue raised in respect of the restatement of Plus500UK's subsidiary accounts and the implication that group revenue is substantially over-stated or a substantial amount is generated in unlicensed jurisdictions, we clarify that both assertions are incorrect. The application of the new Financial Reporting Standard 102 resulted in the reallocation of gross revenues attributable to Plus500UK's customers to Plus500 in the company's 2014 results. This also required the 2013 results to be restated. The reallocation has no impact on group consolidated revenue," Plus500 added.
In the same update, however, Plus500 conceded that the suspension of customer accounts in the UK had hit revenue from that operating business, with UK revenue falling by around USD4 million in the final fortnight of May. Overall revenue in the group's second quarter was down to USD25.8 million from USD45.5 million a year earlier, though the group cautioned against extrapolating from those figures given the volatility it can see in quarterly periods. It also said revenue in 2015 to May 25 was higher year-on-year.
Numis analyst Jonathan Goslin said the deal looks like a good one for Plus500 shareholders, given the ongoing uncertainty caused by the FCA probe, the proportion of clients that can ultimately be verified, and the potential reputational damage the group may be facing. The broker puts its recommendation and price target on Plus500 under review.
Connor Campbell, an analyst at Spreadex, said the two companies have an Israeli connection, with Playtech owned by Israeli billionaire Teddy Sagi and Plus500's main offices being based in Israel.
Campbell added the fortunes of the company's respective shares following the deal were predictable, with Plus500 shares rising following the huge losses in recent weeks and Playtech shares off "as investors showed their displeasure at this newly acquired risk."
By Sam Unsted; [email protected]; @SamUAtAlliance
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