- »Australian Growth for Flutter and TSG Ahead of Merger
Australian Growth for Flutter and TSG Ahead of Merger
The Flutter Entertainment business deal was announced less than two months ago. But it has received worldwide press almost continuously since then due to its size and scope. It will be one of the largest acquisitions in the global gaming industry if Flutter is allowed to acquire The Stars Group, contributing to Australian growth.
Flutter-TSG Deal Basics
When the deal was first made public on October 2, it caught the attention of people in the business world ranging from the gambling industry to the stock markets. Flutter Entertainment, formerly PaddyPower Betfair, was going to acquire The Stars Group (TSG). They are the parent company of PokerStars.
A combined valuation of the companies put the deal’s worth at £9.8 billion.
The merger is expected to give Flutter shareholders 54.64% of the combined stock, with the rest left to TSG shareholders. The unified company is also expected to see increased revenue from cross-promotions, lower finance costs, and pre-tax cost synergies of £140 million each year.
The result will be a “global leader in sports betting and gaming,” with approximately 13 million customers in more than 100 betting markets.
The companies hope to complete the deal in the second or third quarter of 2020.
Australian Market Included
One of the largest markets affected by the acquisition is Australia.
The merger will benefit Sportsbet and BetEasy in the Aussie market. Their $4.3 billion in annual revenue could equal 26% of the market share.
Expectations grew even more when both companies separately reported their third quarter financials earlier this month. Both saw significant growth in Australia and made special note of it.
TSG Australian Division
Praising the success of Australian and UK divisions in the third quarter, The Stars Group claimed “rapid progress” in its overall performance.
The total revenue increased to $622.4 million, an upswing of 8.8%, prominently featuring customer engagement and business patterns in the UK and Australia. This was accentuated by a larger sports betting vertical, now 35% of TSG’s total business.
Specifically, Australia posted $71.1 million in the third quarter, which was up 36.4% year over year. This was driven by higher betting net win margins despite a decrease in stakes due to 2018 World Cup results and foreign exchange fluctuations.
Flutter in Australia
As for the third quarter results of Flutter Entertainment, its overall revenue grew 10% to £533 million. Just the Australian growth for net revenue was up 19%.
The report highlighted improving sales in Australia, with Sportsbet revenues up 19% from the previous year. Overall Flutter sports betting revenue was up by 11%, with only an 8% revenue increase in gambling in general.
Flutter Brings in Higginson
Also announced this month, Flutter announced its choice for new company chairman. Andrew Higginson plans to leave his position as the board chairman of Morrisons supermarket group to step in for current position-holder Gary McGann when he retires.
The move is likely to happen in the second quarter of 2020, as the acquisition nears. The handover might happen at the company’s next general meeting in May 2020.
Higginson will be one of the key people to spearhead the transition as the acquisition reaches the final approval stages.
Many Approvals Required
Flutter will not be able to complete its acquisition of TSG without the approvals of regulators in major gambling markets around the world.
Most notably, the companies will have to persuade the UK Gambling Commission (UKGC)’s Competition and Market’s Authority and the Australian Competition and Consumer Commission (ACCC). The Australian Competition Tribunal (ACT) might step in to examine the deal as well.
Some analysts suggested that concerns about a monopoly could be assuaged by the unloading of a piece of the current Flutter holdings.
According to the UK Times, Canaccord Genuity analysts suggested that Flutter could offload Paddy Power to appease governmental business watchdogs. It would be the most “logical decision” to sell the digital and retail businesses of Paddy Power to offset the Sky Bet acquisition that would be a part of The Stars Group deal.
As Flutter CEO Peter Jackson noted last month, “We know what we need to do in Australia and will work and engage with them in due course”. He added that they are “very respectful” of the Australian regulators and oversight groups.
Jackson also acknowledged that Flutter currently operators both brands that are competing with TAB, the Australian-owned betting company. However, he noted that TAB dominates the market, and he said, “We’re just small corporate bookmakers nipping at their heels.”
Stocks Still Rising
Shareholders continue to respond positively to news of the acquisition, and the Australian growth.
Stocks of Flutter Entertainment registered at $46.72 on September 30. But it soared to $54.83 over the course of the month and a half following the news of its intent to acquire The Stars Group.
TSG, similarly, has done well. The Stars Group started at $14.98 but now sit at $22.88.