Zeal rejects Lottoland offer for German business

11 January 2019

Zeal Network has turned down Lottoland’s offer of €76m (£681.m/$87.2m) for its German business, with chief executive Helmut Becker dismissing the lottery betting operator's bid as an attempt to disrupt its planned acquisition of Lotto24.

Lottoland lodged the cash offer to buy the Tipp24.com business earlier today (January 11), with a view to also purchasing Zeal’s UK subsidiary Tipp24 Services Ltd, its customers and related intellectual property and infrastructure.

However, Zeal has rejected the non-binding offer, saying it significantly undervalues Tipp24.com, and would strip the business of its most valuable asset.

Becker claimed Lottoland was attempting to purchase core Zeal assets on the cheap, adding that the main purpose of the offer was to disrupt the pending Lotto24 acquisition.

“It does not reflect the value of our German business,” Becker said. “At the same time, a sale of our core business would leave Zeal and its shareholders with all downside risks from pending VAT litigation in Germany and with significant costs from restructuring the rest of the business.”

Zeal announced plans to acquire its former subsidiary Lotto24 in December last year, with a view to repurposing its lottery betting arm Tipp24 as a brokerage business and combining this with Lotto24's operations. This, it claims, would create a new entity with billings of €500m and a client base of more than 5m. However Lottoland claims the deal would result in a massive loss of billings and a lower profit margin for the combined business.

The lottery betting giant accused Zeal of acting only in the interests of certain investors, and called for the shareholder vote on the deal, scheduled for January 18, to be postponed. Lottoland has also suggested that it would launch a rival bid to acquire Lotto24 at a later date.

Zeal hit back, saying that any delay to next week’s meeting could derail the bid. The company also said no rival bid had been tabled, nor was there any suggestion any bid would be forthcoming.

Zeal has today reiterated that the meeting will go ahead next week as planned, with Becker again stating that the company's bid for Lotto24 would create the most value for shareholders.

“Our plan to convert Tipp24 into a brokerage business and to combine it with Lotto24 will create a strong platform for future growth and is far superior to the Lottoland proposal,” Becker said.

“The positive preliminary results announced today by Lotto24 further emphasise the attractiveness of the brokerage business model.

“Lottoland’s offer therefore confirms our view that their main intention is to disrupt the Lotto24 transaction, driven by their business interests as a competitor.”

The war of words between Zeal and Lottoland is being played out against a backdrop of increasing regulatory pressure on lottery betting operators in Germany. In recent years, courts in Rheinland-Pfalz and Bavaria have upheld bans on Lottoland operating and advertising respectively.

Fears that either the federal or state governments could begin taking action against unlicensed online operators active in the market were further raised by a ruling from Germany's Federal Administrative Court in March this year. The ruling stated that the current prohibition on online casino and poker did not violate constitutional or European law, effectively giving authorities legal certainty to crack down on gambling operators in the market.

A number of gaming operators have noted that this could lead to crackdowns on products not expressly regulated in the 2012 State Treaty on Gambling, despite that legislation being widely discredited in both German and European courts. While a number of states, including Hessen, have suggested that they will break away from the Treaty to develop a liberal regulatory model, that state's finance minister Thomas Schäfer has already said that any future regulatory model will prohibit lottery betting.