- »Coronavirus Hits Stocks, but Flutter-TSG Merger Still On
Coronavirus Hits Stocks, but Flutter-TSG Merger Still On
The fallout from the spread of coronavirus throughout the world has been staggering. Entire countries are on lockdown, societies are essentially closed, and the threat of a deadly virus lurks on every surface and in every person. The world has changed drastically in a few short months.
In Australia, the rise of coronavirus cases is slower than in many parts of the world but still worsening. In just two days, the number of cases in Australia has risen to just over 3,000 to 3,640, though the number of deaths has only risen from 13 to 14.
However, Australia needs only look to countries like Italy, Spain, and France for examples of how quickly and terrifyingly COVID-19 can get out of control. The United States is another example, as it took just a few weeks for the case number to exceed 100,000 and deaths to pass the 1,700 mark. Australia wants to mitigate the damage and try to stop it before it gets desperate.
Stock Market Falls
When businesses began to scale back due to the need for social distancing and self-quarantining, the stock market sunk in despair and in anticipation of worsening conditions.
Those conditions did, indeed, worsen over the past week. Stores and businesses of all kinds were forced to close. Restaurants closed. Casinos shut their doors. It was a week predicted by sinking shares around the world. And this past week, it all hit the Australian Securities Exchange hard.
Australian Prime Minister Scott Morrison ended a painful week by only stating that there will be a “hibernation” plan in place to help businesses and the entire economy rebound when the pandemic threat is over. However, the lack of details from Morrison gave little reason for shareholders to be confident.
Three Major Casino Stocks Plummet
Crown Resorts (CWN) was forced to close all of its casinos and restaurants this week, though hotel accommodations remained fulfilled in a limited capacity. The result is evident in its market data:
- March 2: $10.24 (highest point in March)
- March 20: $5.90 (lowest point in March)
- Crown halted trading on March 20 and resumed March 24
- Nearly 10,000 employees were stood down
The Star Entertainment Group (SGR) was under the same type of order as Crown. Its share price on the Australian Securities Exchange took a similar dive as well:
- March 3: $3.78 (highest point in March)
- March 25: $1.565 (lowest point in March)
- The Star halted trading on March 23 and resumed March 25
- Approximately 8,100 employees (90% of workforce) were stood down temporarily
SkyCity Entertainment Group (SKC) was in the same position of closing most of its businesses across Australia but also its New Zealand casinos. The result was another company with tanking stocks.
- March 3: $3.105 (highest point in March)
- March 23: $1.145 (lowest point in March)
- Trading did not halt this week
- No mass layoffs took place last week
The overall Australian Securities Exchange suffered, as did other markets around the world. On March 2, the price came in at 5,304 but hit its low on March 23 at 3,782. It ended March 27 at 4,018, showing a monthly drop of 24.2% with two trading days left in the month.
Flutter and The Stars Group
One of the largest mergers in gaming history is moving forward amidst the chaos of the world markets.
Flutter Entertainment (parent company of Paddy Power Betfair) announced its intention to acquire The Stars Group (parent company of PokerStars) in October 2019 and seemingly made all the right moves to move toward closing the deal in the second or third quarter of 2020.
Approximately one month ago, both companies released their year-end 2019 results on positive notes. Flutter showed a 14% revenue increase for the year to £2.14 billion, with Australian revenue on par with overall numbers. The Stars Group revealed a 25% increase to $2.53 billion for the year, with its Australian revenue up 39.3% alone.
Then, the coronavirus crisis spread across the world.
Flutter Entertainment (FLTR) on the London Stock Exchange started the month at 8,700 but dropped to its low point of 5,084 on March 26. It climbed back to close at 6,552.00 on March 27.
The Stars Group (TSG) on Nasdaq kicked off March at 23.87 on the fourth of the month but hit its low mark of 11.91 on March 18. However, it also rallied for a 17.69 close on March 27.
In response to the market crisis, Flutter announced it will suspend the 2020 dividend while its board “monitors the sporting calendar, associated performance of sports betting as well as the combined group’s anticipated deleveraging and balance sheet position.” And the impact of the market disruptions will likely push its net debt to the first reporting period following completion above 3.5 times core earnings.
The Stars Group’s March 27 press release told a similar story but without dividends, as it has never done dividends. The company will hold a special meeting of shareholders on April 24 with attendance and voting virtually as an option for most.
Flutter-TSG Merger/Acquisition Update
Regarding the combination of Flutter and TSG, the latter reported that the two companies still believe in the strategic rationale for the combination. Flutter revised its dividend approach as mentioned, and its annual dividend is also suspended for the current financial year.
Flutter will maintain a board of directors consisting of 15 directors and nine proposed directors through December 2020. TSG CEO Rafi Ashkenazi will become a Flutter consultant and advise Flutter’s CEO on its strategy for the combined group. This means Ashkenazi will no longer take on the role of Chief Operating Officer.
The companies will reveal more information in their shareholder meetings within the coming month. As it stands, Flutter still intends to complete its acquisition of TSG in the second or third quarter of 2020. Considering the current unstable financial climate, however, it may be inevitably pushed to the third quarter to finalize the deal.