Shareholders may give Playtech a rough ride on GBP 100 mill placing

The successful placing of Playtech shares to raise GBP 100 million in additional capital for acquisitions could come under fire from shareholders, opined the business editor of the Telegraph on Sunday.

The newspaper reported extensively on the recommendation of leading City analyst Ivor Jones of Numis Securities that shareholders vote down the agreement, which would give billionaire founder Teddy Sagi more control in the company.

Playtech needs the money to fund “acquisition opportunities” of up to GBP 40 million and “new joint ventures”, using the marketing expertise of PT Turnkey Services (PTTS), which the company bought from Sagi last year for up to Euro 280 million, including a Euro 140 million earn-out.

Institutional shareholders committed to GBP 39 million of the placing, with Sagi putting up the rest after his Brickington investment vehicle underwrote the fundraising, thus increasing his hold in the company to 43.7 percent.

But the placing is subject to the approval of more than 50 percent of shareholders, Numis is advising against it…and due to his involvement Sagi apparently cannot vote his shares.

The situation makes for keen interest in the vote, which will be taken at an extraordinary meeting of the company on the Isle of Man on December 19.

The investors have been offered a sweetener in Playtech’s plan to reinstate a dividend – something it deferred at August’s half-year results – paying a higher level of 40 percent of profits.

That has raised another question, with Jones asking why the company is reinstating dividend payments, given the apparent need for new capital, and estimating that the cost of the dividend would result in a payout of more than GBP 40 million in the first half of next year.

Sagi could prosper handsomely from such a dividend, Jones observed: “It does, of course, suit the principal shareholder, which having subscribed for 61 percent of the new equity, will get the 2011 interim and full year dividends combined within just a few months.”

The analyst was also perturbed at the lack of shareholder information on the acquisitions for which Playtech raised the capital, pointing out that this could boost share prices that are currently at a “multi-year low.”

Jones suggests that Playtech defer the PTTS earnout payment to Sagi, asking whether it was “appropriate for Playtech to pay at least Euro 140 million to the principal shareholder to buy PTTS….and then have the same shareholder buy shares in Playtech – its value in theory enhanced by the acquisition of PTTS – on a five times ebitda multiple”.

The Telegraph reports that Sagi has taken more than GBP 500 million cash out of Playtech since he floated it in 2006. The company is currently valued at GBP 552 million.

Asked for comment, Playtech chairman Roger Withers referred questions to his PR adviser maintaining “that is the professional way to deal with it”.

A spokesman said: “The deals are on the table now. We talked about raising debt but concluded that equity was cheaper. Some of our shareholders are income funds and we listened to them over the dividend”.

James Hollins of Evolution was more supportive of Playtech, telling the Telegraph that the placing is short-term dilutive, but that the investments will ultimately prove to be enhancing.

The market appeared content with the placing – Playtech shares rose 12.25 to 227.75p.