INVESTORS CHRON' - DISAPPOINTED12 Feb 2017 07:40
Article by Megan Boxall. 09Feb 2017.
DISAPPOINTING TAKEOVER OFFER FOR NETPLAY TV.
Competition in the online gaming market has ratcheted up in recent years and Netplay TV' s (NPT) investors have shared in the company's pain with the shares down two thirds in the past three years.
And it seems rival Betsson AB, a Swedish digital gaming services company, is looking to take advantage of the weakness potentially adding disappointment for shareholders who remain convinced the group's fortunes can improve.
Under the offer terms, Netplay shareholders will receive 9p per share, valuing the company at approximately £26.4m. Granted, this is a 12.5 per cent premium to the closing price on the day prior to the takeover announcement, but the shares stood at 9p as recently as September.
At that time, we argued the valuation - on just nine times forward earnings - was too low for a company operating in a growing marketplace, sitting on a £9m cash pile and with a history of paying out generous dividends.
The group's shares have collapsed since early 2014 when they were trading at highs of 24p. The introduction of a new point-of-consumption tax for online gaming companies in December 2014 hit profits, while competition has ramped up. But Netplay has remained a solid player in the online gambling space with its customer numbers increasing year on year.
It's easy to see the attraction of the bid from Betsson's point of view but it's harder to understand why Netplay's management is recommending that shareholders accept such a lowly offer. A spokesperson for the group highlighted the "increasing operational and financial burden" on smaller businesses due to the evolving regulatory environment, which perhaps suggests management believes a deal is essential to prosper in the UK marketplace.
Group chief executive Bjarke Larsen and finance director Akshay Kumar are also set to receive £165,000 on the completion of the deal on top of a 'termination of employment' payment of £7,500 and £15,000, respectively.
----------------------------------------------------------------------------------------------------------------------------------------------
IC VIEW:
We're not convinced the offer represents Netplay's fair value but the group's entire board, including non-executive directors who are not included in the incentivisation scheme, unanimously recommended the offer. In September, the group said its growth plan, launched at the start of 2016, could be bolstered with "either bolt-on or transformational M&A opportunities", which made it sound like the active party. Management has clearly given up on that idea in favour of being bought. Await documents.
Last IC View: Buy, 9p, 13 Sep 2016
Sign In
Follow the stocks
