Paddy Power, Betfair Announce Merger

The online gaming industry continued its trend toward consolidation Wednesday as European rivals Paddy Power and Betfair agreed to merge into a combined company with annual revenues of €1.5 billion ($1.7 billion). The announcement comes on the same day that both companies reported strong quarterly financial results.

In a joint statement, the companies said, simply:

The Boards of Paddy Power and Betfair are pleased to announce that they have reached an agreement in principle on the key terms of a Possible Merger of Paddy Power and Betfair to create Paddy Power Betfair plc (the “Combined Group”).

The Possible Merger would create one of the world’s largest public online betting and gaming companies by revenue with enlarged scale, capability and distinctive and complementary brands. The combination has compelling strategic logic and represents an attractive opportunity for both companies to enhance their position in online betting and gaming and to deliver synergies, customer benefits and shareholder value.

The statement also reveals that Paddy Power shareholders will own 52 per cent of the new company and Betfair shareholders would own 48 percent. Paddy Power shareholders will also benefit from a special €80 million dividend.

BetfairThe new corporate leadership will be as follows:

Gary McGann, Chairman of Paddy Power – Chairman of the Board of the new company
Breon Corcoran, CEO of Betfair – CEO of the new company
Andy McCue, CEO of Paddy Power – COO and an Executive Director of the new company
Alex Gersh, CFO of Betfair – CFO and an Executive Director of the new company

Betfair and Paddy Power will continue to operate as separate brands; the new company will be called Paddy Power Betfair Plc.

The financial markets have reacted favorably to the news (it also helps that is the bounce-back day after the world’s security exchanges experienced one hell of a correction). Paddy Power shares closed Tuesday at 78.5 pence on the London Stock Exchange and closed Wednesday at 93.02p, an 18.5 percent increase. Similarly, Betfair closed Tuesday at 2,603p and closed Wednesday at 3,030, an jump of 16.4 percent.

Betfair CEO Breon Corcoran told The Financial Times, “These are two businesses that are performing at a very high calibre and we will have a market-leading position in the UK, Europe, Ireland and Australia.

“We are paying a slight premium but I regard this as a merger of equals,” he said. “We have known each other a long time. I used to wear a green jacket. We have been speaking intensely over the summer and warmly for a time before that.”

While the press release from the companies touts “synergies,” as these types of things always do, Cormac McCarthy, CFO of Paddy Power, said that this corporate-speak is overblown. “Betfair is the leading exchange business in sports betting and that technology is something Paddy Power does not have,” he said. “We have a retail and mass market business and we have an Australian business that they do not have. If you look at the strategic rationale, synergies are not the first thing.”

Corcoran also isn’t concerned with “cost synergies” and neither company is concerned with slashing jobs to make the merger look good.

Paddy-Power-Irish-Open-logoOne of the interesting aspects of this merger of equals is that Corcoran was once COO of Paddy Power; he spent ten years with the company. “He knows both businesses inside out,” Edward Wray, co-founder and Chairman of Betfair told The Financial Times. “Often when you do a merger, it is 25 per cent known and 75 per cent unknown. This is the other way around.”

The announcement comes a month after UK-based gaming companies Ladbrokes and Gala Coral agreed to a merger. The new company, Ladbrokes Coral, will be the leading bookmaker in the UK, with a total of 4,039 betting shops, though that number may shrink a bit if the Competition and Mergers Authority requires the company to sell some. William Hill has been the top dog in the UK with 2,300 shops.

Further industry consolidation is also in the works with someone, somewhere about to buy partypoker’s parent company, bwin.party. The latest high offer made earlier this month by GVC Holdings for 125.5p per share, a sizeable increase from its previous proposal of 110p per share. Though it came in at a little bit less than GVC’s initial number, 888 Holdings is still currently the leader, as the bwin.party board recommended 888’s proposal to its shareholders. GVC is currently in talks with bwin.party to try to convince it to take its bid.

In bwin.party’s case, “synergies” were actually a reason it went with 888’s less lucrative offer. GVC’s partnership with PokerStars parent Amaya Gaming on the first bid has also been seen as a possible turn-off for bwin.party, as it has been rumored that Amaya and GVC would have split up bwin.party after the purchase.


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