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Screenshot of a breaking news alert e-mail from Q2 2017
LeapRate Exclusive… A legendary stock market investor of the early 1900s, Jesse Livermore, once said that the market is always right.
Well if Livermore was correct, then it appears as if ‘the market’ is beginning to bet against Playtech’s acquisition of Plus500 Ltd (LON:PLUS) actually closing.
Since mid July when Plus500 shareholders approved the acquisition of the company by Playtech PLC (LON:PTEC), Plus500 shares have (as expected) traded is a fairly tight £3.75-£3.80 band, just below the £4.00 cash offer made by Playtech.
Again, that price action is very normal in M&A deals involving publicly traded companies. The acquired company’s shares typically trade at slightly below the offer price until the deal closes, reflecting the very small chance that the acquisition might break up for some unforeseen reason and the to-be-acquired company’s shares might trade back down to where they were before the deal announcement – in Plus500’s case the £2.50-£3.00 range.
So it certainly caught our interest when, in the past two days, Plus500 shares traded down 5% to close Wednesday at £3.54 – their lowest closing price since early June. Not a monumental move, but noteworthy nonetheless.
Plus500 share price past 3 months. Source: Google Finance.
So why the sudden drop in Plus500’s share price?
Well quite simply, shareholders are suddenly beginning to bet against the deal actually closing. Or at least closing quickly.
And the reason?
It seems as though the delay injected into Playtech’s other pending acquisition, that of retail forex broker AvaTrade, has spooked Plus500 investors that the acquisition of their company might also be delayed or blocked.
Both acquisitions are at roughly the same stage. All terms are set and all approvals are in – except for the acquired-companies’ main financial regulator. That would be the Central Bank of Ireland (or CBI) in the case of AvaTrade and and the UK’s FCA for Plus500. With the CBI now opposing the AvaTrade deal, it seems as though Plus500 shareholders are worried that the FCA might similarly come out against the Plus500 acquisition.
As we wrote in our CBI-AvaTrade article linked to just above, we believe that those fears are unfounded. The FCA is unlikely to be influenced by the actions of the CBI, one way or another.
And as for the reason we believe that the CBI has opposed the AvaTrade acquisition – that it has a problem with a regulated financial entity being owned by a company involved in the online gaming sector – while that might be a problem in Ireland, there is certainly ample precedent in the UK for regulated financial companies being owned by or linked to online gaming companies. For example LMAX, which began its existence majority-owned by Betfair.
But again, the market is always right…