Lottoland makes €76m bid for Zeal’s German business

11 January 2019

Lottoland Holdings has proposed a cash offer of up to €76m ($87.6m) for Zeal Network’s core German business in the latest twist in the drama relating to the latter’s proposed takeover of Lotto24.

The lottery betting operator has made a bid, signed by CEO Nigel Birrell (pictured) and published this morning by Zeal, to acquire the lottery brokerage's Germany-facing business. It is also looking to purchase Zeal's UK-based subsidiary Tipp24 Services Ltd, its customers and related intellectual property and infrastructure.

Lottoland confirmed the proposed offer would not include acquiring the MyLotto24 brand.

Following due diligence, Lottoland said it would formally offer between €60m and €76m for the assets, assuming a market value of around €38m.

Lottoland, which owns a 4% stake in Zeal, said its offer was a superior proposition for shareholders to the proposal filed by Zeal in November 2018.

It called on Zeal to immediately postpone next week’s Extraordinary General Meeting, at which shareholders are set to vote on the Lotto24 acquisition. Instead, shareholders should be allowed to evaluate Lottoland’s proposal after due diligence had taken place, the operator said.

Lottoland, which holds a 4% stake in Zeal, this morning reiterated that it believes the brokerage's offer for Lotto24 “destroys value, makes no strategic or economic sense and will result in a massive loss of billings and a substantially lower margin (potentially even a negative margin) for the combined new group.”

Citing Zeal’s rationale for its purchase of Lotto24, Lottoland said its proposed takeover would offer significant risk reduction from an operational, tax, and regulatory perspective, improved growth potential, and cost synergies.

“By divesting itself of the German lottery betting business, the company is reducing its operational, tax and regulatory risks in much the same way as through the transaction,” Lottoland said.

“It will no longer be exposed in Germany to the volatility created by big wins, the uncertainty surrounding the outcome of the pending German legal VAT case and the assumed risk of an outright ban on lotto betting.”

Highlighting the souring of relations between the two groups, Birrell’s letter addressed to Zeal chiefs Helmut Becker and Jonas Mattsson said the offer was made “despite our efforts to enter into a nondisclosure agreement and despite your reluctance to share any information with us or answer our questions.”

Zeal announced the proposed takeover of Lotto24 in November, saying that the combination would create a digital lottery giant with over five million around the world, billings of around $500m (£391.2m/€436.3m) and a diversified international footprint.

Lotto24, which originally operated as Zeal’s German lottery brokerage division, was spun off as an independent business from the group in 2012.

Zeal reported billings of €280.5m and revenue of €134.3m in 2017. For the first nine months of 2018, billings were up 5% year-on-year to €212.4m, with revenue up 19% at €111.2m for the same period. As of September 30, it had 3.5m registered customers.

Lotto24 generated billings of €220.7m and revenue of €25.2m in 2017. The business upgraded its full-year guidance for 2018 in October, and now expects to see billings growth of between 38% and 43% for the year.