Why is the Aristocrat Leisure share price under pressure?

Posted: 19 November 2021 12:58 pm
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Shares in the gaming giant are up 37% in the last 12 months, so why are they struggling today?

Aristocrat Leisure (ASX:ALL) is among the top traded stocks on the ASX boards on Friday. Shares in the company are down nearly 1% to $45.22 at the time of writing, on top of the nearly 4% decline in the previous session.

What is weighing on the Aristocrat stock price?

The gaming and slots machine business on Thursday posted robust annual results, with underlying net profit jumping 80% to $865 million, close to pre-pandemic levels, and revenue rising 14.4% to $4.7 billion.

It also lifted the full-year dividend to 41 cents, a fourfold improvement from 10 cents last year and confidently claimed it expected to complete the proposed acquisition of UK's Playtech by the middle of next year.

The stock has been in the spotlight in recent months because of its $5 billion bid for the UK-based online gaming software supplier that would give it "material scale" in the US$70 billion online real money gaming industry.

However, the plan appears to be in shambles after news just after the results announcement that a consortium called JKO Play has approached Playtech to explore a takeover bid of its own.

Playtech has already been talking to its largest shareholder, Hong Kong-based Gopher Investments, about a bid to rival the deal agreed to with Aristocrat.

Takeover battle looms

The London-listed Playtech's shareholders are due to vote on the Aristocrat offer on 12 January, but the entry of 2 potential rivals threatens to turn the race for the target into a full-blown bidding war.

Aristocrat says it has irrevocable commitments and letters of intent in support of its offer from a Playtech investor representing 16.5% of that company's shareholder base.

It has defended its bid as "strategically and financially compelling" and says it provides "certainty for Playtech's shareholders."

Aristocrat last month raised $1.3 billion in equity to fund the deal, issuing 31 million new shares that diluted roughly 4.8% of the company's equity capital. Investors are now worried that a bidding war may require further dilution, which would weigh on the company's finances in the longer run.

Alternatively, if Aristocrat decides to pull out of the contest, it would leave the gambling giant stuck with $1.3 billion worth of additional cash and nothing to put it towards. Either way, a difficult situation!

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