Playtech confident on acquisitions despite CBI opposition

Playtech remains confident it would receive the necessary regulatory permissions for its two proposed financial trading acquisitions despite the intervention from Ireland’s financial watchdog with regard to one of the deals in question.

The announcement by Playtech on Monday that the Central Bank of Ireland (CBI) had notified the company of its opposition to the AvaTrade buyout late the previous week came out of the blue for both Playtech and the analysts who follow the group.

The company said on Monday it would be “seeking clarification from the CBI” and will “engage with them in order to discuss certain issues raised in the letter which the company believes can be addressed to the CBI’s satisfaction”.

It followed that up with another stock exchange announcement on Tuesday saying it had heard back from the CBI and “following this communication and having taken legal advice, the company intends to formally challenge the decision”.

Nick Batram at Peel Hunt suggested the CBI news was “undoubtedly a setback”, particularly given that the AvaTrade deal is commonly thought to be less contentious than the Plus500 deal, where Playtech is also currently engaged with the regulators across various jurisdictions to gain deal clearance.

“In the grand scheme of things AvaTrade is not a material transaction,” Batram said of the US$105m deal in a note to clients on Monday.

“However, it clearly creates uncertainty around the Plus500 deal. We don’t know whether the (UK’s Financial Conduct Authority) will be influenced or not by the CBI, but the Plus500 deal is already taking longer to complete than originally expected.”

For its part, Playtech remained tight-lipped over the details of the CBI objections, but sources close to the company suggest it is set to vigorously defend the deal and added that it is “very, very surprised” at the intervention.

It is understood the company received the notice late on Friday evening, after the markets had closed, and that up until that point there had been minimal contact with the regulator.

It will be appealing through the official regulatory process and it is thought that recourse to further legal avenues is available should it become necessary.

Combined, the AvaTrade and Plus500 deals mark a further evolution of Playtech’s march into financial trading (paywall), a move that began at the start of the year when it bought TradeFX, a company owned by Playtech’s majority shareholder Teddy Sagi.

The “opportunistic” Plus500 acquisition came after that company fell foul of the UK’s financial watchdog over its client ‘onboarding’ techniques. The FCA intervention saw Plus500’s share price take a 50% tumble, at which point Playtech stepped in with its takeover offer.

The original completion date for the Plus500 deal was pencilled in for September, but in a stock exchange announcement in mid-September, the company said that the necessary regulatory approvals were “taking longer than… originally anticipated”.

It said at the time that it was “currently not aware of any issues which would give rise to the required regulatory approvals not being granted in due course”.

The US$105m AvaTrade acquisition is the lesser of the two deals, compared with the £460m deal for Plus500. Playtech sees the AvaTrade deal as a bolt-on acquisition that had been agreed upon by TradeFX before the Playtech deal.

Goodbody analyst Gavin Kelleher said “in its own right AvaTrade is not huge driver of the investment case”. But he added: “However, given the delays with the Plus500 deal, which is a significant driver of the investment case, the market will be looking for that deal to complete within the next month.”

Playtech is understood to remain confident it will gain clearance from the UK’s FCA and other regulators involved in the Plus500 deal, including Singapore and Australia. The company noted at the time of the publication of the Plus500 buyout prospectus that further enquiries regarding Plus500 had been received from an unnamed regulator.

The deal already has clearance from the Cyprus Securities and Exchange Commission (CySEC) and from the British Virgin Islands, however, analysts from Cannaccord Genuity pointed out that the news of the Irish issues “will clearly raise some concerns over the potential for the FCA to block the Plus500 deal”.

Batram at Peel Hunt pointed out there were questions about whether the FCA would be influenced by the Irish central bank’s intervention. “The Plus500 deal is already taking longer to complete than originally expected,” he added.

Playtech said this week that both deals were proceeding in line with regulatory guidelines and would be completed either this month or in November.

Canaccord Genuity said it believed the “heightened concerns over the timing and certainty of completion” of the two deals could cause some share price uncertainty. The Playtech share price suffered on the CBI news, falling from around 840p last week to 784p as of Thursday (yesterday).

In tangential news, financial trading rival IG Group announced on Wednesday it had settled a compensation deal with clients over events at the beginning of the year related to trading on the Swiss franc.

The company has accepted the Financial Ombudsman Service’s decision that the company could have settled certain ‘fill orders’ at a more beneficial price than that given to some of its clients. It said the decision would cost it £1m to rectify all accounts affected.

This stands in contrast to Plus500, which said at the time of the extraordinary movements in the Swiss franc that it had made money from the movements caused by the Swiss National Bank decision to end its currency peg to the euro (paywall).