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Playtech (£2.1 billion) buys 3% stake in Ladbrokes (£1.75 billion)

Playtech now has a market cap of £2.1 billion, higher than Ladbroke’s market cap of £1.75 billion.


Teddy Sagi

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“The Daily Telegraph” reports that Playtech Cyprus Ltd. (LSE:PTEC), controlled by Teddy Sagi, has acquired almost 3% of Ladbrokes plc (LSE: LAD) for £37.1 million. According to the paper, Playtech briefed shareholders that this was an investment, dampening speculation that it was considering a takeover of Ladbrokes.In the UK, the party at interest threshold is 3% of a public (compared with 5% in the US and Israel), and Playtech is not required to report the holding. Playtech bought the shares from Ladbrokes’ largest shareholder, Schroders, which reduced its stake to 9.9%.

“The Daily Telegraph” reports that Schroders sold the Ladbrokes shares at £1.70 per share. Ladbrokes’ share price closed at £1.90 on Friday, giving a market cap of £1.75 billion. Playtech’s share price closed at £7.21, giving a market cap of £2.1 billion, after rising 91% over the past year.

Ladbrokes is the UK’s second largest online gaming company, after William Hill plc (LSE: WMH). In March 2013, shortly after Playtech sold its share in its joint venture with William Hill, William Hill Online, it began collaborating in a similar venture with Ladrokes to replicate the success, while helping Ladbrokes narrow the wide gap that had opened between it and William Hill in the online UK gaming market.

Since May, Playtech has supplied its end-to-end platforms and services to Ladbrokes online sites, including poker, roulette, and bingo. Playtech receives royalties for use of its platforms, and is eligible for part of Ladbrokes’ online revenue in cash and Ladbrokes shares.

Sagi believes that Ladbrokes is a bargain at its current price, especially if its collaboration with Playtech pays off in the medium and long term.

“The Daily Telegraph” quotes a source in the City as saying that the stake buying was a “typical Sagi move. He wins either way. If Playtech turns round Ladbrokes, the shares go up. If not, it’ll get bid for and he can always sell out to a bidder. It also quotes Numis analyst Ivor Jones as saying that it could be tough for Playtech to launch its own bid. “It might be commercially difficult for Playtech to become an operator in a market where it provides key services to what would then be its competitors, ” he said.

Playtech’s strategy is not to become a gaming operator, especially not online, but to be the leading supplier of systems for online gaming operators. Its equity investment in Ladbrokes is neither the only nor first such investment: it invested in Sportech plc (LSE: SPO) (and recently sold the stake at a modest profit), AsianLogic Ltd., and PhilWeb Corporation.

Playtech has no problem financing these investments: it sold its stake in William Hill Online for £424 million, possibly making it one of the most liquid companies in the business.

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