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The acquisition of gambling software development company, Playtech plc, by Aristocrat Leisure Limited on 2 February 2022, after a group of activist shareholders blocked the takeover bid during a dramatic investors meeting which saw the scheme fail to meet the requisite 75% approval threshold, despite a favourable recommendation by the board. 

Australian gambling giant, Aristocrat’s offer to acquire the entire issued and to be issued share capital of the company at £6.80 per share, which has now lapsed, valued Playtech at £2.7bn representing a 58.4% premium to Playtech’s share price one day prior to the announcement. The technology company, which has pioneered online gambling software worldwide, is considering its options now that the Aristocrat offer is no longer on the table. Aristocrat CEO and Managing Director, Trevor Croker, noted the shareholder influence in blocking the deal, :

‘We are disappointed that our recommended offer to acquire Playtech plc is expected to lapse. Notwithstanding extensive due diligence on Aristocrat's part, developments since the announcement of our offer have been highly unusual and largely beyond Aristocrat's control. In particular, the emergence of a certain group of shareholders who built a blocking stake while refusing to engage with either ourselves or Playtech materially impacted the prospects for the success of our offer, which had been recommended by the Board of Playtech plc.’

The demise of Aristocrat’s bid marks the latest twist in a turbulent few months for Playtech. Aristocrat first made an offer for Playtech on 17 October 2021, which caused the company’s share price to skyrocket 58% to £6.79 per share.

After announcing that they had reached agreement on the terms and conditions of a recommended cash offer by Aristocrat, Playtech that it had been approached regarding a counter bid by Hong Kong-based Gopher Investments, Playtech’s second-biggest shareholder, triggering a possible takeover battle. Gopher of the running days later, but not before another potential suitor entered the race. Former Formula One team owner Eddie Jordan opened talks regarding a by consortium JKO play, comprising Eddie Jordan Family office, Keith O'Loughlin and Centerbridge Partners L.P, speculated to value Playtech at £3bn.

On 5 January 2022, Playtech the extension of JKO’s put up or shut up (PUSU) deadline and its intention to adjourn its upcoming court and general meetings, initially scheduled for 12 January 2022, to 2 February 2022, delaying the shareholder vote on the Aristocrat offer and igniting the prospect of a bidding war (see: Playtech delays Aristocrat takeover vote as JKO Play interest sparks prospect of bidding war). However, JKO also from the race due to concerns that a group of Hong Kong-based investors, who built up a 27% stake in Playtech, would vote down any deal that did not meet their perceived value of the company. This was the exact event that finally resulted in the collapse of the Aristocrat deal following the intense shareholder meetings which saw only 54.68% of the vote cast in favour of the deal.

Following the withdrawal of JKO amid fears of shareholder activism, Playtech sought to manage its increased shareholder engagement in relation to the Aristocrat offer, : 

‘The Board continues to seek engagement with all of its shareholders regarding the Aristocrat Offer. However, a number of material investors have not to date engaged meaningfully about their views on the Aristocrat Offer, including certain investors that have disclosed or taken material positions in the Company following the announcement of the Aristocrat Offer.’

However, Playtech’s efforts failed to prevent activist shareholders from torpedoing the recommended deal.

Commenting on the trend of increasing shareholder activism on takeover deals in our Trends in UK Public M&A trend report, Tom Matthews, Partner at White & Case notes:

‘The post-pandemic world has provided fertile ground for activists to propose M&A solutions, be it a take private, a strategic acquisition or the increasingly popular conglomerate break-up. It has also led to shareholders robustly opposing bids on the grounds of valuation. Shareholders are no longer protesting with one eye on bumping the offer price. They are challenging boards to come up with an alternative to a take private. Whilst valuations remain opaque, and with many companies still trading well below pre-pandemic levels, we expect M&A opposition to continue, with minority shareholders exercising the full spectrum of tools at their disposal to engage with bidders and target boards.’

Playtech is considering the sale of its assets now that the Aristocrat offer has lapsed. The company :

‘The Board has been actively considering its options for maximising shareholder value in a scenario where the Aristocrat Offer does not proceed and lapses, and in so doing has been evaluating attractive M&A proposals it has received from third parties in respect of Playtech's B2B and B2C businesses.’

However, an asset sale involving Aristocrat would require the Takeover Panel’s consent under Rule 35.1 of the Takeover Code. Rule 35.1 prevents a bidder whose offer lapsed or was withdrawn, from taking various steps to launch a second bid, such as announcing a possible offer for the target or acquiring a stake that might trigger a mandatory offer (for more information, see Practice Note: (a subscription to Lexis®PSL Corporate is required)). In 2018, this 12-month restriction was extended to apply to asset purchases where the assets are deemed significant in relation to the target company. Should Aristocrat wish to bid for Playtech’s assets it would need to obtain approval from Playtech and the Panel to circumvent the restriction.

Noting the rollercoaster events that have taken place over the last few months, Brian Mattingley, Chairman of Playtech stated: â€˜This process has shone a spotlight on the fundamental premium value of Playtech's businesses. Playtech is the leading technology company in the gambling industry, with an unrivalled quality and breadth of products.’ 

Following this statement highlighting the premium value of the pioneering gambling software company, on 3 February 2022 Playtech that it had been approached by TTB partners, an affiliate of former suitor Gopher Investments, regarding a possible offer, news of which caused Playtech’s share price to leap 10%. Playtech has, once again, commenced an offer period, the day after Aristocrat’s offer lapsed. Gopher Investment’s decision to withdraw from launching a bid on Playtech triggered a six-month restriction period binding TTB from making an offer, imposed by Rule 2.8 of the Takeover Code, however Playtech confirmed that it had granted approval for TTB to be released from the restrictions (for more information on Rule 2.8, see Practice Note: (a subscription to Lexis®PSL Corporate is required)).

The shareholder vote against the Aristocrat deal is the latest example of increased engagement from shareholders on takeover transactions, a growing trend which played out in a number of deals in 2021, including the Blue Prism plc by Vista Equity Partners, which was publicly attacked by key shareholders over the value and eventually lapsed (see: Bleak outlook for Vista as Blue Prism agrees terms of £1.24bn offer with SS&C Technologies) and Globalworth Real Estate Investments Limited by CPI Property Group S.A and Aroundtown SA,  (see:  Globalworth Real Estate Investments board reject offer from its largest shareholders), and is expected to continue in 2022.

Commenting on this trend in our  Trends in UK Public M&A trend report, Daniel Simons, Partner at Hogan Lovells highlighted:

‘We expect both overt activists and long-only institutions will continue to push back against relevant bids (both publicly and behind the scenes, in terms of lobbying the board, other shareholders and other stakeholders) and hold out for higher value in the medium term (‘grinding’ a deal to a halt), improved offer terms (‘bumping’ the price) or banging the drum to attract competing bidders. Caution is needed however as challenging a proposal can backfire, whether triggering an auction process (which doesn’t always produce the desired result), destabilising the target, its business and stakeholders or entrenching the original proposal such that it is not improved. The most effective challenges are often pre-emptive discussions on a supportable exit price before an offer is tabled, in discussions with bidders as well as targets behind the scenes – we are seeing more of this activity.’