What are the real motives behind Playtika’s $813 million bid for Rovio?
Israeli gaming company Playtika is trying to buy Rovio, the company behind the popular Angry Birds, for $813 million. According to the company’s announcement last Thursday, they made an improved offer that reflects a 55% premium to Rovio’s closing share price on the Helsinki Stock Exchange on January 18. The release states that Playtika made an initial offer in November at a lower price of 8.5 euros per share, which Rovio rejected. The Finnish company’s stock jumped 35% in Helsinki trading on Friday and is now worth 586 million dollars. Playtika’s investors were more subdued in their reaction, with the company’s shares settling for a 7 percent gain that lifted it to $3.7 billion.
While Playtika’s move can be dismissed as just another merger between companies in the gaming market, which has experienced a slowdown after a strong surge during Covid, there are several question marks over the Israeli company’s true motives. One of the unusual aspects of Playtika’s proposal is the desire to pay the entire amount in cash, although deals of this size between two public companies usually pay at least part of the amount in shares.
Playtika already has experience in acquisitions of Finnish game development companies, and it bought ReverX, the company behind the popular decoration app Redecor, in September 2021 for $600 million. In this deal, Playtika agreed to pay $400 million in the first phase and $200 million subject to the acquired company meeting certain targets. Incidentally, the Reworks acquisition also had similar characteristics as Playtika found a company with one popular app that could be leveraged with its powerful monetization tools.
Unlike Redecor, Angry Birds is a much more well-known brand that broke records and made history when it was the first mobile game to reach one billion downloads after its release in 2009. In 2016, a movie based on the game Angry Birds was even released. In 2017, Rovio was floated in Helsinki, although only a relatively small portion of its shares are traded and around 40% are still privately owned. Although its profitability has weakened in the past year, Rovio said it has reached 5 billion downloads and expects to report revenue of around €320 million in 2022, a 12 percent increase over 2021.
Playtika officially states that its plan is to take advantage of a well-known brand, but it is not clear why they plan to pay cash in a deal that will completely empty the company’s account or even debt in a time of higher interest rates. . Just a few months ago, it spent $600 million to buy back its own shares.
Also, while Playtika is a very profitable company, only a month ago it began a massive layoff process, during which it laid off 610 employees, representing 15% of the company’s workforce, and shut down entire teams and games. The latest cuts come about six months after 250 workers were laid off and when its latest quarterly report was released, it lowered its annual revenue forecast to $2.6 billion. The turnover for the first nine months of the year was 2 billion dollars and the net result was 183 million dollars.
Why is it urgent for a company that has just laid off hundreds of employees, shut down games, and spent $600 million on its own stock buybacks to go on an expensive cash adventure?
Looking for a growth engine is one explanation, but it is not enough. Rovio is indeed growing more than Playtika, but not at a phenomenal rate that would feel significant at the scale of the merged company. It is possible that the explanation for the current activity can be found in the ownership structure of the company itself.
The gaming company has already changed hands several times, and more than 25% of its shares were to be sold to the Chinese Joffre Capital fund for $8.5 billion last year. The deal blew up last December, and it could be that Playtika sees the Rovio purchase as a sort of “poison pill” that could prevent potential acquisitions. After all, who wants to buy a company that is trying to use all their money or take on debt to fight to buy a company that probably doesn’t really want to be sold. At the same time, announcing the offer is also an invitation to offers from competitors, which will only increase Rovio’s valuation. Meanwhile, Rovio said it was considering the offer.