Paddy Power and its rival Betfair "announced a potential merger that would create one of the largest public online betting and gambling companies in the world," according to Tom Knowles of the LONDON TIMES. The all-share deal, which is likely to be worth in excess of £5B ($7.7B), is the "latest in a wave of mergers between major gambling companies as they act to compete against new taxes and greater regulation on betting." The deal would see Paddy Power shareholders owning 52% of the new company's shares, while Betfair shareholders would hold 48%. Paddy Power shareholders would "also receive a special dividend" of £58.5M ($90.5M). The new group would have revenues of more than £1.1B ($1.7B), the two companies said, making it a "significant challenger to rivals such as William Hill, Britain's largest gambling group." The proposed deal comes "just two months after Ladbrokes and Gala Coral announced a merger that will create Britain's biggest high street bookmaker." Meanwhile, both 888 and GVC Holding have been "fiercely competing against each other to buy gaming company Bwin.party." The wave of consolidation between gambling companies comes after the government introduced a 15% point of consumption tax in December to "combat remote gambling operators" avoiding U.K. taxes (LONDON TIMES, 8/26). In London, Massoudi & Moore reported both companies benefited from "sharp rises in their share prices after the deal was announced on Wednesday," with Betfair up 18.6% to £30.87 ($47.74) and Paddy Power rising by 16.6% to €90.70 ($102.62) in early trading. Breon Corcoran, who left Paddy Power in '12 to become CEO of Betfair and will become the head of the combined group, said, "These are two businesses that are performing at a very high caliber and we will have a market-leading position in the U.K., Europe, Ireland and Australia." Corcoran said that he expected the competition authorities in several countries "to evaluate the merger, but said he hoped the deal would complete next January." He said the combined company would be called Paddy Power Betfair Plc. If "you don't bet, you can't win." William Hill is "set to be superseded" by "Betty Power," as the combo of Paddy Power and Betfair has been dubbed. Paddy Power CEO Andy McCue will become COO while Paddy Power Chair Gary McGann "will be chairman of the combined group." Corcoran "would not be drawn on the likely cost savings," saying that he did not want to "set horses racing" among Paddy Power's 5,000 staff in Ireland and Betfair's 2,000 or so U.K. employees (FINANCIAL TIMES, 8/26).
MOVE TO CONSOLIDATE: In London, Sean Farrell reported the deal would combine Paddy Power, the "aggressive Irish bookmaker that courts controversy" and operates on U.K. and Irish high streets and online, with Betfair's online gambling exchange, which lets punters bet against each other in real time "instead of accepting bookies' odds." Corcoran has been credited with "turning around the fortunes of Betfair." Since taking the helm, he has increased U.K. customer numbers by 250% and Betfair's share value has risen from about £750M to £2.4B ($3.7B) (GUARDIAN, 8/26). REUTERS' Maidment & Halpin reported under the proposed merger, Corcoran said both brands will "operate side by side in Europe." Paddy Power's portfolio of almost 600 betting shops, "more than half of which are in Britain, will also remain part of the plans." Analysts pointed to "significant scope to cut costs through the removal of duplication within the two businesses." Davy Stockbrokers declared "the two best quality companies in the European online gaming sector are on the verge of merging" (REUTERS, 8/26).
'VERY POWERFUL TEAM': BLOOMBERG's Donal Griffin reported both companies reported results on Wednesday "to show how they are merging from a position of strength." Paddy Power's first-half net revenue climbed 33% to €527.8M ($597.3M). Betfair said that earnings before interest, tax, depreciation and amortization increased 19% in its first quarter to $64M. Nick Batram of London's Peel Hunt said, "Both Paddy Power and Betfair are delivering sector-leading performances. Combined, they will represent a very powerful team." Merrion Capital analyst David Holohan said, "Given the strong overlap of products and history between the management teams it should be a good fit. The deal also marks a triumphant return for Breon Corcoran." Morgan Stanley and IBI Corporate Finance are advising Paddy Power, while Goldman Sachs Group Inc. is "providing financial advice to Betfair, according to the statement" (BLOOMBERG, 8/26). In N.Y., Rory Gallivan reported Citi analyst James Wheatcroft said that he was not surprised by the proposed merger, which comes after the "imposition of a new online gambling tax in the U.K." Wheatcroft said that the new levy has "triggered a financial and strategic rationale" for consolidation in the sector (WALL STREET JOURNAL, 8/26).
