Acquisition and Agreement

RNS Number : 1808G

Playtech Limited

20 October 2008

 



20 October 2008

Playtech Limited

('Playtech' or the 'Company')

Online gaming software licence agreement with William Hill PLC ('William Hill')

Acquisition of businesses and assets from affiliates and other third parties and 

immediate sale of majority of these businesses and assets to William Hill

Highlights:

William Hill software licence agreement

• Playtech is to supply William Hill Online with casino, poker and other gaming software products (the 'William Hill Online Licence') on a phased basis commencing January 2009 and culminating in an exclusive relationship for casino and poker from 1 January 2010. The William Hill Online Licence will run for a minimum of five years

Acquisition of businesses and assets of affiliates and other third parties

• Playtech is to acquire certain online gaming marketing assets, businesses and contracts (the 'Purchased Assets') from affiliates and other third parties for a total consideration of up to $250 million (c. £144.5m) in cash from existing resources (the 'Acquisition')

• For the six months to 30 June 2008, the Purchased Assets generated combined revenues of $51.4m (c. £26.0m) and net earnings of $10.4m (c. £5.3m). These net earnings are growing rapidly and the current annualised net earnings run rate for the Purchased Assets is c. $31.0m  (c. £17.9m)

Immediate sale to William Hill

• Playtech will immediately sell the majority of the Purchased Assets to William Hill in return for a 29 per cent. interest in William Hill's enlarged online operation ('William Hill Online'). Playtech's interest in William Hill Online can increase to 32 per cent. depending on certain conditions relating to the integration

• William Hill retains a right to buy out Playtech's interests in William Hill Online after four and six years on an independent fair value basis 

• William Hill will continue to control and operate William Hill Online

• William Hill's pro forma 2008 estimates for the enlarged William Hill Online business announced today: net revenues of c. $328.7m (£190.0m) and EBITA of c. $129.8m (£75.0m)

Financial effects for Playtech

• Playtech's Board believes this series of transactions, which are expected to complete in full in January 2009, will be significantly earnings enhancing from January 2009 when Playtech will receive: 

• licence income under the terms of the William Hill Online Licence; plus

• a 29 per cent. share of William Hill Online's profits, a significant amount of which is expected to be distributed. This 29 per cent. interest was determined on the basis of the contribution of the Purchased Assets to William Hill's enlarged online operation and reflecting a reduction in revenues currently generated by Playtech from certain of the Purchased Assets

• Playtech's Board also believes there is the potential to make a significant future capital gain if William Hill Online is successful and if William Hill exercises its buy out rights in relation to Playtech's interest

Mor Weizer, Chief Executive Office of Playtech, said:  

'This series of transactions is very significant for Playtech. We are delighted that Playtech is to provide software to a market leader such as William Hill and believe that the licence agreement confirms Playtech's status as the leading software provider to the global online gaming marketplace. We are excited to be working with a company that has the scale and breadth of William Hill. 

Through these transactions William Hill's online gaming and sports betting business will be well positioned for significant future growth. Whilst William Hill will continue to manage and control its online business, Playtech, through our minority interest, will benefit financially from the future growth of the enlarged William Hill online operation.

This is the first in a number of other potentially significant earnings enhancing affiliate acquisition opportunities'.

Forward looking statements

This announcement includes certain forward looking statements that identify expectations of future events or results. All statements based on future expectations rather than historical facts are forward looking statements that involve a number of risks and uncertainties and Playtech cannot give assurance that such statements will prove to be correct.

Note: $ refers to US Dollars; historical results have been converted at the average exchange rate for the relevant period and the consideration amounts (together with expected earnings figures) have been calculated at an exchange rate of £1 : US$1.73, the prevailing exchange rate on 18 October 2008.

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  For Further Information:

Mor Weizer, CEO, Playtech Ltd 

c/o Bell Pottinger Corporate & Financial                        Tel: [phone]     

www.playtech.com

Nick Ellis / Piers Coombs 

Collins Stewart                                                                Tel: [phone]

Mumtaz Naseem
Deutsche Bank                                                               Tel: [phone]

David Rydell / Chris Hamilton / Helen Tarbet

Bell Pottinger Corporate & Financial                              Tel. [phone]  

There will be an analyst meeting and presentation today commencing at 10:45 for 11:00 start to be held at the City Presentation Centre, 4 Chiswell Street, Finsbury Square, London, EC1Y 4UP.

Dial-in details to listen to the analyst presentation: 

11.00 am  

UK/Rest of World Access Number                                         [phone]

US Toll Free Number                                                               [phone]

A recording of the meeting will be available for a period of seven days from 20 October 2008. To access the recording please dial the following replay telephone number:

Rest of World Toll Access Number                                         [phone]

UK Toll Free Access Number  0800 358 2189

US Toll Free Access Number                                                   [phone]

Pin Code                                                                                    238164#

An audiocast of the meeting and slide presentation given at the meeting will be available on the Group's website later today.

Award of Software Licence to William Hill Online

William Hill Online has entered into a software licensing agreement with Playtech whereby Playtech will provide its market leading software products to power William Hill Online's casino, poker, bingo and live gaming products. Playtech will be supplying software on an exclusive basis to certain parts of William Hill Online and will start a phased programme of supplying software on a non-exclusive basis to the rest of William Hill Online from 16 January 2009. Playtech will, from 1 January 2010, be William Hill Online's exclusive gaming software provider for poker and casino. 

The Acquisition

In addition, Playtech has today agreed to acquire certain online gaming businesses, comprising an affiliate marketing business, customer services operation and related gaming brands, websites, assets and contracts (the 'Purchased Assets') from affiliates and other third parties for a total consideration of up to $250 million in cash (c. £144.5m).

The Purchased Assets are principally being acquired pursuant to arrangements with Uniplay International Limited ('Uniplay') and Six Digits Trading Limited (together the 'Uniplay Assets'), companies ultimately owned by trusts in which Mr. Teddy Sagi is beneficially interested. A trust in which Mr. Sagi has a beneficial interest owns approximately 41.06 per cent. of Playtech's issued shares and, accordingly, he is a related party of Playtech for the purposes of the AIM Rules. 

Consequently, the Acquisition is being treated as a substantial transaction and a related party transaction for the purposes of rules 12 and 13 of the AIM Rules. The Directors of Playtech consider, having consulted with its nominated adviser, Collins Stewart Europe Limited, that the terms of the Acquisition are fair and reasonable insofar as Playtech's independent shareholders are concerned.

The acquisition of the Uniplay Assets has not been made pursuant to the exercise of the call option over Uniplay's shares granted at the time of Playtech's flotation in March 2006, but rather as an asset purchase, thereby not assuming any inherent liabilities of Uniplay. The Uniplay Assets have been acquired on the basis of approximately a 7x multiple of current run rate, whereas under the original call option arrangements the consideration for the acquisition was based on a multiple of future trading performance. Given the significant growth of the trading performance of the Uniplay Assets, the Directors believe that the agreed consideration payable for the Uniplay Assets and the basis and terms on which the assets are being acquired represent a more favourable deal than those offered under the original call option terms.

The profits attributable to the Purchased Assets for the full year 2007 were $US11.5m (c. £5.8m). For the six months to 30 June 2008, the Purchased Assets generated combined revenues of $51.4m (c. £26.0m) and net earnings of $10.4m (c. £5.3m). These net earnings  are growing rapidly and the current annualised net earnings run rate for the Purchased Assets is c. $31m  (c. £18m).

The 29 per cent. interest in William Hill's online gaming business

Upon acquisition of the Purchased Assets, Playtech will immediately contribute the majority of them to William Hill's existing online gambling operation to form an enlarged business, William Hill Online. As a result, Playtech will own a 29 per cent. interest in William Hill Online, with William Hill owning the remaining 71 per cent. This 29 per cent. interest was determined on the basis of the contribution of the Purchased Assets to the enlarged online operation and in reflection of a reduction in revenues currently generated by Playtech from certain of the Purchased Assets. 

William Hill can buy out Playtech's interests in William Hill Online after four and six years on an independent fair value basis. As part of any such buy out, Playtech, at its discretion, is entitled to receive part of the proceeds in William Hill shares, not to exceed 10 per cent. of William Hill's outstanding share capital. 

Playtech's ownership interest in William Hill Online can increase from 29 per cent. to up to 32 per cent. depending on certain conditions relating to the integration. 

The transaction is expected to complete in full in January 2009.

William Hill Online 

The transaction brings together complementary businesses. Playtech brings its market leading casino, poker, bingo and live gaming products to William Hill Online's gambling business. William Hill offers strength of brand, sports betting knowledge and a large established UK customer and profits base. The Purchased Assets when combined with William Hill's existing online gambling business represent a profitable online business with a proven track record in European and other international markets. 

Management and employees of the businesses forming part of the Purchased Assets will transfer to the employment of William Hill Online, which will be led by newly appointed CEO, Henry Birch.Henry was previously CEO of Leisure & Gaming PLC, the AIM quoted online gambling company, and has extensive knowledge of the online gambling industry.

William Hill's pro forma 2008 estimates for the enlarged William Hill Online business announced today are net revenue of c. $328.7m (£190m) and EBITA of c. $129.8m (£75 million).

Summary

The transaction adds another significant licensee to Playtech's growing stable of operators and enhances its status as the leading provider of online gaming technology to the global marketplace. Playtech is the largest licensor of online gaming software, having more than 60 licensees in operation. 

The transaction is expected to be significantly earnings enhancing from January 2009. The injection of the majority of the Purchased Assets into William Hill Online will result in Playtech acquiring a 29 per cent. interest in that business. In addition, Playtech will generate income as a software licensor to William Hill Online. 

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