Ladbrokes bets on Playtech for online gamingMonday 11 March 2013 16.08
Bookmaker Ladbrokes has positioned itself for a stronger push into online and mobile gambling through a tie-up with a specialist software developer.
Shares in Ladbrokes jumped to their highest in five years, encouraged by the prospect of the company taking a bigger share of the fast-growing online market via the deal with Playtech.
Playtech develops software platforms for online poker, bingo and other games.
The betting firm will take on 40 staff from Playtech to form a new digital marketing team.
Ladbrokes' customers will get access to Playtech's 200 casino games this year, before their gaming assets are eventually merged onto one platform.
Ladbrokes is aiming to catch up with online offerings from competitors such as William Hill and Paddy Power.
Earlier this month, William Hill took full control of the internet venture it previously ran with Playtech, buying out the latter's stake for £424m as it looks to expand online.
The online gambling sector is seeing a wave of consolidation and deals amid signs that the US is readying to legalise it. Online gambling firm 888 announced two US agreements on Monday.
Ladbrokes said the deal with Playtech should help spur its own growth, but declined to say how much it expected to profit.
"I'm very confident that over the next five years this is going to allow us to accelerate (underlying earnings growth)," Ladbrokes Chief Executive Richard Glynn said, noting the company's online offering would become more comparable to what is available from its stores.
Following its William Hill windfall, Playtech will be entitled to royalties generated under a software agreement with Ladbrokes and a "success fee" based on 27.5% of any increase in Ladbrokes core earnings for 2017.
"This is to replicate the financial success of other joint ventures including William Hill," Mor Weizer, chief executive of Playtech, told Reuters. He added that basing the calculation on 2017 earnings would give the collaboration time to take effect.
Playtech will receive an early instalment of its success fee if increases to core earnings of £35m pounds, £70m and £100m are achieved in any of the three years up to 2017.
Analysts approved of the "no win, no fee" arrangement, which limits financial risk while giving both companies a strong reputational incentive.
The deal boosted shares in both companies, which ranked among the top gainers in the FTSE 350 index of leading stocks. Ladbrokes shares were up 6.9% at 240.7 pence, touching their highest level since mid 2008, having risen almost 50% in the past six months.
Shares in Playtech climbed 3.4% to 571p in early trading before easing to 567p.