NetEnt to further integrate with Red Tiger, resulting in 120 redundancies24th March 2020 9:28 am GMT
Casino supplier NetEnt is laying off 120 employees in Stockholm and Malta as it fully integrates the recently acquired Red Tiger business, with the restructuring expected to deliver annual savings of SEK150m (€13m).
The company said that the restructuring is in line with its strategy of continuous improvement across all parts of the business and will strengthen its competitiveness and increase value creation. The restructuring will mainly affect NetEnt’s Stockholm base.
“We are now entering the next phase of the integration with Red Tiger, whose sellers are also becoming shareholders of NetEnt,” said Therese Hillman, Group CEO of NetEnt. “The integration will unleash the full potential of our shared capabilities, create significant efficiency gains in games development and strengthen our position as the market leader in online casino.”
The Red Tiger acquisition has exceeded expectations and offers significant potential synergies, increased efficiency and economies of scale, the company stated, with restructuring estimated to result in annual savings of approximately SEK150 million on a cash-flow basis, beginning in the second half of 2020.
This will deliver a SEK100m increase to NetEnt’s initial estimate of potential synergies from the acquisition to around SEK250m annually, with restructuring costs of approximately SEK25m to appear as a non-recurring item in Q1 and affect operating profit for the period.
NetEnt is accelerating payment of the earn-out consideration for Red Tiger to enable the restructuring.
The company said Tuesday that Red Tiger’s financial performance has exceeded the company’s forecasts by a wide margin and full integration will offer the potential to extract synergy increases for NetEnt, both in terms of revenue and costs.
NetEnt and the sellers of Red Tiger have agreed an addendum to the share purchase agreement that will see half of the £23m earn-out consideration due in 2022 paid through a directed issue of new B-shares in the second quarter of 2020, and the rest as cash in the second quarter of 2021.
The addendum is subject to approval of a directed issue of 6,327,175 B-shares to the sellers of Red Tiger at the next annual general meeting of NetEnt shareholders, scheduled for April 29, 2020, with the new shares to be issued at a price of SEK21.34 per share. This corresponds to the volume-weighted average price of NetEnt’s B-shares on Nasdaq Stockholm during the period February 24 to March 20, 2020.
The sellers of Red Tiger, including chief executive Gavin Hamilton who now serves as chief operating officer of NetEnt, have agreed not to sell the newly issued shares during a lock-up period until March 2022.
Commenting on the impact of the COVID-19 pandemic, NetEnt said that its effects are difficult to forecast but noted that its operations have not been negatively affected. Revenue has developed in line with market expectations during the first quarter of 2020 and is expected to be in the region of SEK490m to 500m.
Shares in NetEnt AB (STO:NET-B) surged 16.55 per cent on the news to SEK20.35 per share in Stockholm Tuesday morning.