New Global Betting Giant Coming As Flutter Set To Buy Stars Group
It always feels as though it’s never too long before there’s a story breaking about gambling companies taking over other gambling companies, but the news that has emerged today has blown pretty much all of the others out of the water.
Flutter Entertainment, which is the name that Paddy Power Betfair decided to re-brand itself as before attempting to crack the American market, have proposed a takeover of Stars Group. Stars Group, of course, is the company that owns Sky Bet.
The move is likely to create one of the biggest betting companies anywhere in the world, given that if you put the revenue of the two groups together for 2018 you’d have seen a combined figure of £3.8 billion. That would have been the largest figure by an online betting and gaming operator anywhere, thanks in no small part to the 4 million plus customers using their services in over 100 international markets.
This comes in a climate where companies continue to want to combine forces as they face stricter regulation and increased taxes.
Why The Takeover Is On The Cards
Virtually every betting company is gearing up to do its best to crack the American market at the moment, with sports betting in the country likely to explode in the coming months and years.
Given the potentially volatile nature of the market in the most immediate term, having a greater sense of consolidation will protect companies from the slings and arrows of outrageous fortune as the American sports betting market settle into some sort of natural rhythm.
It’s also the case that the United Kingdom Gambling Commission appears to be flexing its regulatory muscles more and more, clamping down on companies that are not operating within the rules set out to them in accordance with their licence.
That, combined with the increase in remote gaming duty that gambling companies are having to pay as the British government attempts to make up for the shortfall it will suffer because of the decision to cut the maximum stake on Fixed Odds Betting Terminals from £100 to £2, means that major gambling companies joining forces is simply a sensible move.
How The New Company Will Be Structured
Peter Jackson, who is the current Chief Executive of Flutter Entertainment, will continue in that role for the proposed new business, whilst the Chief Executive of Stars Group, Rafi Ashkenazi, will become the Chief Operating Officer.
The new group will be chaired by current Flutter Entertainment Chairman Gary McGann. It is something that Jackson believes provides both gambling empires with an ‘opportunity’, allowing them to deliver a change in the way that they attack the international market.
“The combination will turbo charge our existing four-pillar strategy and provide world-class capabilities across sports betting, gaming, daily fantasy sports and poker, as well as greater geographical and product diversification”. He was also quick to point out that it will be the shareholders that stand to gain the most, saying, “We will have an exceptional portfolio of leading recreational brands and best-in-class products on industry-leading technology platforms”.
American Market Remains Key
Though the proposed takeover will need to be approved by a host of regulatory authorities, including those in Ireland, the UK and Australia, it is those in America and Canada that the Flutter Entertainment and Stars Group boards will be most keen to win over.
Speaking about the matter, Jackson was explicit in his feeling that the opportunity open to the potential new brand would be huge, especially because of the foothold that Flutter has already been able to get in America. He said:
“The combination represents a great opportunity to deliver a step change in our presence in international markets and ensure we are ideally positioned to take advantage of the exciting opportunity in the US through a media relationship with Fox Sports as well as our development of US sports betting through Flutter’s FanDuel and TSG’s Fox Bet brands. We are committed to these two high quality brands to drive the growth of the combined group in the US”.
When It Will Happen & What It Means
It is likely that both Flutter Entertainment and The Stars Group will apply to their shareholders for approval of the takeover in the second quarter of 2020. The current track that their on for the deal will mean that it is completed towards the middle of the year, with the headquarters of the betting conglomerate being planned for Dublin.
McGann referred to it as an ‘exciting and transformational’ merger that will see the best of the two worlds coming together to create a ‘global leader’ in a market that is always growing and developing.
That is a feeling that was echoed by the former Chief Executive and Executive Chairman of Sky Bet, Richard Flint. He believes that it will result in a ‘compelling proposition in global sports betting and gaming’. Analysts from Davy, a Dublin-based stockbroker, also used the word ‘transformational’ in their own appraisal of the situation.
They believe that it will transform not only the two companies but also the industry as a whole, saying that they see ‘strong strategic merit in the transaction’. Quite what it means for the wider industry remains to be seen, of course, but less competition isn’t always seen as a good thing, so I expect some objections to emerge in the coming weeks.
Flutter’s Shares Have Already Jumped
As news began to emerge of the rumoured takeover, the share price of Flutter Entertainment jumped as the market reacted positively. Flutter will own around 54% of the new company once it’s formed, whilst the Stars Group shareholders will keep around 45% of it.
With the combined market capitalisation of the two businesses amounting to £11 billion in 2018, it’s little wonder that the Flutter shares moved by around 14% to 8,700 pence when the announcement was made. Not only did it help them out, it also saw the share price of William Hill, GVC Holdings and 888 Holdings improve too.
Greg Johnson, an analyst for Shore Capital, was somewhat understated when he said that the news had ‘interrupted the cornflakes’ on the morning it was announced. He also confirmed what anyone sensible had already been thinking, saying:
“The key global opportunity is the US, with Flutter leading the charge so far and Star’s star up with Fox. The enlarged entity should help market access, although we are unsure the if this is a game changer”.
The two groups are receiving advice from different finance companies and law firms, with Flutter turning to Goldman Sachs International amongst others and TSG looking to different ones including Barclays.