Shares of Playtika (PLTK -2.02%) were trading higher Tuesday after the mobile gaming company announced the preliminary results of a recent tender offer to buy back some of its stock. The company said it expects to repurchase 51,813,472 shares at $11.58 per share.
Not surprisingly, the stock rose to nearly that level, and was trading at $11.37 a share, up 14.3%, as of 9:58 a.m. ET.
Playtika had announced the tender offer at the end of August, saying at the time that, after a strategic review, management had concluded that it was in the best interests of Playtika and its controlling shareholder group, the Giant/Alpha Group, due to Giant/Alpha's debt obligations. Without a tender offer, it said, Giant/Alpha might have been forced to liquidate a substantial percentage of its position, pushing the stock price lower.
According to the agreement, Giant/Alpha will tender at least 211,711,155 shares -- that is, make them available for sale -- though it's unclear how many of the approximately 51.8 million shares that Playtika will repurchase will come from Giant/Alpha.
As described by Playtika, the tender offer seems like a bailout for its largest shareholder, though it also gave retail investors an opportunity to sell their shares for a price modestly higher than the previous trading price.
Playtika went public last year, but its stock has fallen sharply amid the tech sector sell-off, and is now down roughly 60% from its initial public offering price of $27. Playtika's revenues were also flat in its most recent quarter, a reflection of the struggles it is experiencing as consumers who flocked to mobile games earlier in the pandemic are now spending less time on them as they resume more of their previous pastimes. The company is profitable, however, and trades at about 5 times its EBITDA forecast of $900 million to $940 million for the year.
Though new of the tender offer gave the stock price a boost, it will cost the company roughly $600 million in cash, increasing the risk for those who invest in the company, which already has $2.4 billion in debt on its balance sheet.