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Gaming industry software supplier Playtech (LON:PTEC) and spread-betting firm Plus500 (LON:PLUS) have axed their £460mln merger plan amid regulatory concerns.
Playtech has allowed Plus500 to terminate the merger agreement after deciding it could not fully allay the concerns of the UK's Financial Conduct Authority (FCA) about the deal before it was due to complete at the end of 2015.
It is believed the concerns related to Playtech's ability to correct problems in Plus500's UK business that emerged earlier this year.
In May, the FCA forced Plus500 to carry out extra anti-money laundering checks on new and existing customers, which led to delays in approving new accounts.
It is thought that the FCA was concerned about Playtech's relative lack of experience in dealing with complex financial products traded by Plus500, such as contracts for difference.
Shares in Playtech fell 73p to 778.5p. Broker Investec said it was reducing its target price on Playtech by 50p to 850p, although it was keeping its 'buy' recommendation on the stock.
Analyst Alistair Ross said: "Our target price included a partial uplift from assumed completion of the Plus500 deal, and after removing this, our target price falls."
The FCA updated Playtech on the situation on Friday and the company made its decision after considering its position over the weekend, it said.
"The board of Playtech is now of the view that the steps being proposed to address these concerns will not sufficiently satisfy the FCA to enable Playtech to obtain the FCA's approval by December 31, 2015, and is therefore withdrawing its change of control application to the FCA," it said.
Under the terms of the merger agreement with Plus500, Plus500 had the right to terminate the deal if completion did not occur by December 31.
Playtech added: "The company has discussed with Plus500 the consequences of the recent developments with the FCA and has agreed to the termination of the merger agreement. Accordingly, the acquisition of Plus500 will not proceed as planned."
Playtech, which has a 9.9% stake in Plus500, said it had "no immediate plans" regarding the holding. It would not face any financial penalties from the collapse of the deal.
The company also said it believed the failure of the deal increased the risk that its planned acquisition of Irish business Ava Trade would also not take place.
Playtech has launched a legal challenge after the Central Bank of Ireland (CBI) opposed the deal.
"Should the acquisition of Ava Trade not proceed, Playtech will not incur any financial penalties other than forfeiting the previously announced $5m non-refundable deposit already paid by Playtech on the signing of the acquisition," Playtech said.
"Playtech continues to appeal the CBI's decision to oppose its application to acquire Ava Trade."
The group said its gaming division was expanding at a double-digit rate and it was still committed to enlarging its financial arm through internal growth and acquisitions.
But it said the division's short-to-medium term contribution to the group was now unlikely to be as big as it would have been if the Plus500 deal had gone ahead.
"Playtech is in the process of evaluating its options with regards to its significant cash balances following the termination of the acquisition of Plus500, taking into account the availability of suitable value-enhancing acquisitions across the business," it said.