Flutter Entertainment Could Sell Paddy Power to Get Stars Group Merger Approved

  • Merger faces regulatory hurdles over potential customer lack of choice in UK, Australia
  • Investment bank believes selling Paddy Power is right move to ease regulatory concerns
  • Sky Bet deemed too important for United States market expansion to shed
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An industry analyst from Canaccord has said that Flutter Entertainment should look to sell Paddy Power to get regulators’ approval for its merger with The Stars Group. [Image: Shutterstock.com]

Analyst sees Paddy Power as “logical” choice

Following an industry-rocking merger announcement two weeks ago, Flutter Entertainment and The Stars Group still need to satisfy gaming regulators before the combination can be finalized. According to Canadian investment bank Canaccord Genuity, one way to do this is for Flutter to divest itself of its flagship brand, Paddy Power.

selling Paddy Power is the most “logical decision”

An analyst from Canaccord told the UK’s The Sunday Times this weekend that selling Paddy Power is the most “logical decision” to get the Competition and Markets Authority’s (CMA) blessing.

Competitive concerns in the UK

The issue at hand is whether the CMA will see the merger as limiting competition. The authority investigates such matters if a merger produces a combined market share of at least 25 percent.

the combined company would have about 37.5 percent of the market

GamblingCompliance estimates that the two companies would control nearly that exact proportion of the UK’s online gambling and sports betting market. Flutter owns Betfair and Paddy Power, while The Stars Group owns Sky Betting & Gaming and PokerStars.

In just the UK sports betting market, the combined company would have about 37.5 percent of the market. In Betfair, Paddy Power, and Sky Bet, it would also control three of the country’s top seven sports betting brands. Because of this, Canaccord believes Paddy Power as a candidate for sale would ease the CMA’s possible concerns. Canaccord ruled out Sky Bet because of The Stars Group’s momentum in the fast-growing sports betting industry in the United States.

The Stars Group has launched FOX Bet in New Jersey in a major partnership with FOX Sports. It also has deals in place with Eldorado Resorts and Penn National Gaming to gain access to their markets.

Australia also in question

Australia could also pose a problem for the Flutter-The Stars Group combined company. It is possible that the Australian Competition Tribunal (ACT) or the Australian Competition & Consumer Commission (ACCC) could take a look at the merger. Flutter owns Sportsbet.com.au and The Stars Group controls BetEasy. The latter united the former CrownBet and William Hill Australia. Both compete with the Totalisator Agency Board (TAB) in Australia.

“We are very respectful,” said Flutter CEO Peter Jackson of Australia’s regulators after the merger announcement. “We know what we need to do in Australia and will work and engage with them in due course.”

Jackson downplayed concerns, adding, “We both run brands in Australia that are trying to take on the might of the TAB, they’re the behemoth in the market and we’re just small corporate bookmakers nipping at their heels.”

Merger creates multibillion-dollar giant

Flutter Entertainment and The Stars Group announced their all-stock merger on October 2. The Stars Group shareholders will receive .2253 new Flutter shares for each Stars share. Flutter shareholders will control the new company, owning 54.64 percent.

The combined company’s headquarters will be in Dublin, Ireland. The company, which has no official name yet, will trade on the London Stock Exchange. Flutter and The Stars Group generated a combined revenue of £3.8 billion ($4.67 billion) last year.

Flutter executives will, by and large, keep their positions in the new company. The Stars Group CEO Rafi Ashkenazi will be the combined company’s COO.