Pokies giant takes $1.5b gamble on Israeli gaming outfit

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Australia’s biggest gambling company has agreed to acquire Israel-based gaming software company NeoGames in a $1.5 billion bid to expand its global presence and penetrate the online lottery market.

Aristocrat Leisure said it would buy 100 per cent of Nasdaq-listed NeoGames at a cash price of $US29.5 ($44.30) a share. The transaction values NeoGames shares at about $US1 billion ($1.5 billion) – 4 per cent above its weighted average price in the three months to May – and implies a total value of $US1.2 billion

Aristocrat Leisure wants to expand its global presence and penetrate the online lottery market.Credit: John Woudstra

Despite falling short in its bid for British online casino outfit Playtech in February last year after failing to secure enough shareholder support, Aristocrat has been angling to become a leader in the emerging digital gambling industry.

Several forms of online gambling including online casinos, in-play sports betting and betting on the outcome of a lottery are banned in Australia, but are becoming increasingly legalised in the United States, with the Virginia Lottery the first in the US to operate a completely cloud-based iLottery program in April. As a result, Aristocrat chief executive Trevor Croker has previously said the US market is a substantial opportunity for the firm.

NeoGames’ iLottery platform serves largely North American and European customers, offering platform and services to mostly government clients.

Its other business units include an online real money gambling (RMG) technology platform, a content development and aggregation provider and a sports book solution supplier for the online sports betting industry.

Real-money gaming is any type of online game where players bet real money on the outcome of the gameplay.

Aristocrat’s acquisition comes after it flagged lower earnings and an underwhelming dividend in November, pointing to hampered online revenue and its withdrawal from Russia’s lucrative gambling market.

Shares in Aristocrat closed at $39.51, up 2.1 per cent on Monday.

Croker said the acquisition would position Aristocrat with global scale and capability in the growing online RMG industry.

“Through the acquisition of NeoGames and its industry-leading global online RMH platform, this transaction will deliver on our strategy by providing a portfolio of end-to-end solutions for iGaming, iLottery and online sports betting operators globally,” Croker said.

NeoGames’ major shareholders, representing about 61 per cent of its outstanding shares, have agreed to vote in favour of the acquisition – a deal which requires support from holders of at least 66.7 per cent of the company’s shares.

The acquisition is expected to be completed during the 2024 financial year, subject to shareholder support and gaming regulatory, antitrust and foreign investment approval.

In an equity research report on Aristocrat published on Sunday, before the acquisition announcement, Goldman Sachs analyst Darshana Syama said: “Recent investor conversations shows that there remains strong interest in the name, especially its iGaming opportunity,” but that opinions were divided on how quickly it would become a meaningful part of the business.

Syama also said Aristocrat’s peers provided strong earnings updates in the first quarter and that trading environment updates from the company in its first-half earnings report would be an important feature to watch. “Commentary on capital outlook and trading in the industry, especially given ongoing fears of a macro weakening, will be key from our perspective for the land-based business,” Syama said.

Aristocrat will report its first-half earnings on May 18.

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