Betfair, Paddy Power Announce Merger Talks

Merger mania in the European gambling sector continued earlier today with announcements by Paddy Power and Betfair that the two firms are discussing a merger that could produce one of the world’s largest gambling enterprises.  According to published reports, the total value of the deal could exceed £5 billion (about USD $7.6 billion), and would produce the largest gambling company serving both the UK and Ireland markets.

The share values of both Paddy Power and Betfair surged on Monday on the news, by nearly a fifth; Ireland-based Paddy Power logged an 18% win, while Betfair rose almost as much, logging a 17% gain on the day.

Under the terms of the proposed merger, which were made public for the first time, Paddy Power’s existing stock holders would own 52% of the new company, while Betfair’s current owners would claim the other 48%.  Paddy Power shareholders would also receive a special dividend of €80 million, distributed equally among all current shareholders.

A statement issued by Dublin-based Paddy declared that 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.”  According to the statement, “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 proposed combined group would include both Paddy Power and Betfair bigwigs in new executive positions.  Current Paddy chairman Gary McGann would become Chairman of the Board of the Combined
Group, which will likely be called Paddy Power Betfair PLC.  Breon Corcoran, currently the CEO of Betfair, would become the CEO of the Combined Group. Andy McCue, the CEO of Paddy Power, would become COO and an Executive Director of the Combined Group. And Alex Gersh, the current CFO of Betfair, would become CFO and an Executive Director of the Combined Group.  Other current execs would also continue on in similar or slightly altered roles and positions.

Commentary in UK and European financial news outlets attributed the likely merger — which if approved by the companies’ shareholders, would take place within the next several months — to the new British POC tax which went into effect late last year.  (Ireland has instituted a similar tax based on the UK mandate.)  However, such statements simplify the reality that gambling in general and online gambling in particular are maturing markets already susceptible to mergers and acquisitions.

Nonetheless, the likely merger continues a string of major consolidations in the gambling world.  Ladbrokes and Gala Coral recently announced a merger which, like the Paddy Power / Betfair deal, represents a marriage between nearly equal-sized corporate partners.  And there’s the ongoing bwin.party saga, in which the struggling London-nee-Gibraltar giant will eventually be sold, whether it’s to 888 Holdings or to SportingBet parent GVC.

The deal itself remains to be finalised, with the two companies continuing to work on details to assure compliance with both UK and Irish market-trading regulations.  Paddy’s statement acknowledging the deal included the usual caveats that the proposed merger could still fall apart.  “While there can be no certainty that any transaction will occur,” stated the Paddy presser, “Paddy Power and Betfair expect to provide a further update over the coming weeks.”  Betfair’s nearly-identical press statement included a matching disclaimer.

Both the Paddy Power and Betfair brand names will continue operations under the proposed deal.  While Betfair is a pluralistic brand well recognized in several European markets, Paddy Power is a distinctly Irish brand and a dominant player in that market.  The minimal brand overlap bodes well for the chances that both brands will survive and thrive under combined stewardship in the future.