Major London listed gambling software company Playtech may have suffered a double reverse as it has been forced to cancel one major acquisition, with a second also, seemingly, headed for the rocks. The two deals were intended to help diversify the company away from its existing business which, while still profitable, may be facing pressures in the future if its gambling company customers start to develop their own software for their casinos.
The UK’s financial regulator is the FCA, or Financial Conduct Authority, which has to this point refused to permit Playtech’s previously announced deal to acquire Plus500, a junior London listed company, for about $700 million to go through citing certain concerns, according to a press release put out by Playtech earlier today. Cyprus financial regulators, who also have jurisdiction, have earlier already approved the transaction.
Plus500 are in the business of enabling trading for contracts for difference, or CFDs, which is a form of speculation on movements in the prices of equities without owning the underlying security. With substantial leverage available the prices of CFDs can fluctuate widely, and carry significant risk therefor and these are products generally suitable for sophisticated investors as a result. In addition to covering equity CFDs, the company trades CFDs for other financial markets including commodities and foreign exchange.
As a company engaged in such financial products, within the UK Plus500 is regulated by the FCA who, it is said by a number of news media today, may indeed be worried by the background of Playtech’s founder, and major shareholder, Teddy Sagi. Though he no longer sits on its board of directors Sagi, who still owns around 30 percent of Playtech, was apparently convicted of fraud in Israel some twenty years ago.
In addition, some analysts have noted, the FCA may have been legitimately nervous of Playtech’s lack of knowledge and experience in the CFD business itself, which occupies a fairly esoteric and specialized corner of the financial marketplace.
Israeli financial newspaper Globes reports that, after extensive representations to the FCA over the last few months, the deal finally may have cratered over demands by the FCA to significantly reduce Sagi’s personal financial holding in Playtech as a condition for approval, though this is unconfirmed.
Since it never rains but it pours, another currently pending Playtech acquisition, to buy a second, smaller, broker of CFDs, the Dublin based trader Ava Trade, for $105 million also appeared near to collapse today after, Playtech said in the same press release, concerns stated by the Central Bank of Ireland back in October.
Playtech has stated it will not incur any penalties relating to these set-backs, except to have to give up a $5 million non-refundable deposit it has made for the second, Ava Trade, deal in the event it also collapses as well.
Clearly regulators are very sensitive these days to which entities can play in the financial services game and have raised the bar, it seems, in this case to block an entity controlled currently by a complete outsider to the industry, and someone who clearly has something of a checkered past moreover.