Unbridled excitement was unleashed by the market and analysts as Betfair (BET) and Paddy Power (PAP) became the latest gambling duo to propose a merger. At the time of writing, both stocks were up more than 17 per cent and analysts predicted a potential powerhouse would emerge. Based on the most recent full-year data, the merged entity would be one of the world's largest public online betting and gambling companies by revenue at more than £1.1bn.
Broker Peel Hunt upgraded its hold recommendation on Paddy Power to a buy, which prompted analyst Nick Batram to call the merged business a "must own" in the sector. Daniel Stewart & Company's Sophie Blandford expected "enhanced shareholder value" as a result of likely cost and revenue synergies between the companies.
The news of the £6.5bn merger came as Paddy Power put out its half-year numbers, which showed the business had more than just coped with additional taxes - Point of Consumption and Machine Games Duty - being levied on betting companies. It saw operating profits rise by a third to €80m, with online being the standout performer with a 45 per cent rise in operating profits on a constant currency basis.
The particulars of the proposed deal announced so far mean Paddy Power shareholders would own 52 per cent while Betfair's would own 48 per cent of the combined group. The Irish company's shareholders would also receive a special dividend of €80m (£58.7m). A spokesperson for the company said the dividend was "part of the value equation agreed by the two parties". Importantly, Betfair's Breon Corcoran, who the company poached from Paddy Power in 2012, would become the chief executive while the Irish group's chief, Andy McCue, would become chief operating officer.
The gambling industry clearly sees strength in scale given recent proposals for Ladbrokes (LAD) and Gala Coral to merge as well as the ongoing tussle for Bwin.Party Digital Entertainment (BPTY) between GVC Holdings (GVC), which announced this week it is continuing deal talks in spite of Bwin's directors' unanimous recommendation of 888 Holdings' (888) July offer.
