LONDON Ladbrokes Plc, Britain's second-largest bookmaker, 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 Ltd, a developer of 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, the companies said on Monday. Ladbrokes' customers will get access to Playtech's 200 casino games this year, before their gaming assets are eventually merged onto one platform.
Ladbrokes, a familiar sight in Britain's town centers with 2,200 retail outlets, has struggled to keep up with the online offering of UK market leader William Hill Plc.
Earlier this month, William Hill took full control of the internet venture it previously ran with Playtech, buying out the latter's stake for 424 million pounds ($633 million) as it looks to expand online.
The online gambling sector is seeing a wave of consolidation and deals amid signs that the U.S. is readying to legalize it. Online gambling firm 888 announced two U.S. 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 told Reuters, noting the company's online offering would become more comparable to what is available from its stores.
NO WIN, NO FEE
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 percent 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 installment of its success fee if increases to core earnings of 35 million pounds, 70 million and 100 million 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. "It is a high-profile deal and as such neither party can afford for it to fail," Peel Hunt said in a note.
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 percent at 240.7 pence, touching their highest level since mid 2008, having risen almost 50 percent in the past six months.
Shares in Playtech climbed 3.4 percent to 571p in early trading before easing to 567p. ($1 = 0.6699 British pounds)