Shares in bwin.party digital entertainment rose by more than 5 per cent in London yesterday after an activist investor announced plans to acquire 6.1 per cent of the business from trusts associated with PartyGaming co-founders Ruth Parasol DeLeon and Russell DeLeon.
The two PartyGaming co-founders had announced last year that they would be selling off their remaining stakes in bwin.party in order to help the operator secure a New Jersey online gaming licence.
Parasol and DeLeon opted to place their bwin.party shares into divestiture trusts as a result of their divorce and for reasons of privacy. Parasol owned 58,498,667 shares (7.16 per cent) in bwin.party through her holding company Emerald Bay Limited, while DeLeon owned 58,498,666 (7.16 per cent) shares through his Stinson Ridge holding company.
SpringOwl Gibraltar Partners B Limited has agreed in principle to acquire 49,829,863 ordinary shares in bwin.party, representing approximately 6.1 per cent of the ordinary share capital of the company.
SpringOwl is a Cayman company which is managed by New York hedge fund Cumberland Associates, which states that it “typically adopts an active approach to its investments.”
As part of the transaction, which is expected to be completed within the next two weeks, SpringOwl will also be assigned the right to appoint one director to the bwin.party board.
Following the transaction, SpringOwl said that it may sell shares representing approximately 1 per cent of the issued share capital of the company.
In a note to investors, Numis Securities reiterated its Buy rating and 200p price target, stating that 2014 has the “potential” to be a year of transformation for bwin.party.
Numis had previously said that this transformation would come either from payback on investment in product and marketing coupled with growth in US revenue, or from a restructuring which releases value from the component parts.
“Today's news that an activist fund plans to take a stake seems to make the latter more likely,” said analyst Ivor Jones.
Numis believes that there are several sources of value to a third-party within the business of bwin.party; including its nascent US business with its partnerships which could provide a route into the US online gambling business for an acquirer, while the company’s technology platform would also have value to another online gambling company.
“bwin.party’s brands in markets where the regulatory risk is relatively low could be of value to businesses such as William Hill or Paddy Power that are keen to expand their international footprint and acquirer with a higher regulatory risk appetite might be able to extract more value from the brands in markets with higher regulatory risk,” said Numis.
It added that there are also other activities of value largely hidden within the current bwin.party structure:, including Kalixa (the payments business), the sports media rights business and the social gambling business.
Shares in bwin.party digital entertainment plc (Co. Data) (LSE:BPTY) are currently trading at 119.00 pence per share in London this morning, having gained 5.48 per cent in trading Tuesday.