Bookies eye huge savings in tie-up

Paddy Power chief executive Andy McCue at the bookmaker's AGM earlier in the year.

Paddy Power and Betfair hope to complete their planned merger during the first quarter of 2016, with shareholders likely to vote on the matter in December.

The two betting and gaming services companies yesterday expanded on their initial announcement, made last month, for the creation of a £5bn (€7bn) merged entity. 

It was already known that the new company — which also requires regulatory approval in Ireland and Britain — will be called Paddy Power Betfair plc and will be a 52%-48% split in favour of the Irish company. 

What came to light yesterday was that the companies are targeting annual cost synergies of at least £50m (€68.9m), from 2018. 

The company will also be officially headquarted in Dublin, a detail not confirmed until yesterday, and will have its shares dually listed in London and Dublin.

“In our view, this deal is not about cost-cutting; it is about building a better platform for future growth and delivering revenue synergies over time that comfortably exceed the cost savings already identified,” Davy Stockbrokers analysts, David Jennings and Robert Stokes said in a joint note yesterday.

“The fact that the externally-audited cost synergy figure identified is so material in its own right only adds to our confidence in the outlook for this merger...preliminary calculations suggest that the valuation of the merged entity remains very attractive, notwithstanding the strong share price performance of both stocks since the merger was announced,” they added.

Both share prices were down marginally yesterday, with Paddy Power closing at €98.59 in Dublin.

“The combination makes huge strategic sense by bringing together two industry leading and successful businesses and providing enlarged scale, capability and distinctive, complementary brands,” Betfair chairman, Gerald Corbett said.

The boards of the two companies jointly reiterated their feeling that the merger holds “a compelling strategic rationale” and will offer “enhanced scale and capabilities, such that the combined group will be better placed to compete in existing and new markets”.

Paddy Power’s management said yesterday, on an analyst call, that the merger gives it opportunity to grow internationally — especially in continental Europe and North America — but that it doesn’t envisage disposing of any current assets once the merger completes.

Illustrating the opportunity for customer base build, the company’s confirmed that only 3% of regular punters use both company brands, while 74% of regular bettors don’t currently gamble via either brand.


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