Some Playtech Investors Support Aristocrat Takeover, JPMorgan Forecasts Deal Collapse

Posted on: January 28, 2022, 09:00h. 

Last updated on: January 28, 2022, 12:37h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

A pair of major Playtech (LSE:PTEC) investors are voicing support for Aristocrat Technologies’ $2.8 billion takeover offer for the gaming software company. But JPMorgan analysts say the deal is heading for failure.

Playtech
A Playtech corporate office, seen above. Aristocrat’s pursuit of the company could fall apart, says JPMorgan. (Image: The Times)

Abrdn Plc and TIG Advisors LLC, which own a combined 3.8 percent of Playtech shares, are indicating they will vote in favor of the Aristocrat offer, according to Bloomberg. Unidentified sources told the news agency TIG, a merger arbitrage fund, intends to support the offer, even though it acquired a portion of its Playtech at prices far above the Aristocrat offer.

Last October, Playtech agreed to a $2.8 billion deal with Aristocrat Technologies, one of the world’s largest makers of gaming machines. Playtech’s board of directors is advocating that investors accept the offer. The endorsements of Abrdn and TIG come ahead of Playtech’s shareholder vote on the matter, which is slated for Wednesday, Feb. 2.

Those investors supporting the acquisition are important. But Playtech acknowledged last week it’s having difficulty connecting with a consortium of Asian investors that, since Aristocrat revealed its offer, have amassed a 27 percent stake in the target. That’s enough to affect the outcome of the Feb. 2 meeting, and it’s not yet clear how those shareholders intend to vote. In order for the transaction to proceed, 75 percent of investors must approve it.

JPMorgan Sees Deal Falling Apart

JPMorgan says recent price action in Aristocrat’s Sydney-listed shares indicates markets are pricing in failure in the pursuit of Playtech.

The stock is down 15 percent year-to-date, lagging behind its rivals, and JPMorgan puts the odds of the deal collapsing at a whopping 90 percent. The bank maintains an “overweight” rating on the slot machine maker, noting it’s possible the company could later return with a higher offer for Playtech. Under UK mergers and acquisitions law, if the current offer isn’t approved, Aristocrat will have to wait six months before floating a new proposal.

If JPMorgan’s prediction is accurate and Aristocrat’s move on Playtech falls through, that would represent a stunning turnabout for the target, as it will have gone from three offers to none in a matter of months.

Previously, a Hong Kong investment group known as Gopher Investments made an offer for Playtech that was later pulled. Last week, Eddie Jordan’s JKO Ltd. yanked a $2.9 billion acquisition bid.

Options for Aristocrat, Playtech

Even if Aristocrat and Playtech don’t get to the finish line, another suitor could emerge, or the company could be broken up. That would be a longer process, but potentially generate more value for investors.

As for Aristocrat, which appears intended to stand pat with its current offer, it can hope for the best on Feb. 2, or come back later with a fresh bid if need be.

Additionally, the Australian company could pursue another iGaming target, as it likely considered others prior to moving on Playtech, notes JPMorgan. The bank didn’t mention specific companies Aristocrat could pursue.