Stars Group and Flutter Entertainment agree mega-merger

2 October 2019

Flutter Entertainment, the parent company of Paddy Power Betfair, has agreed a deal to acquire all of the shares in The Stars Group (TSG) and merge with the operator to form a combined business with annual revenue of £3.8bn (€4.3bn/$4.7bn).

Under the agreement, which would create the largest online betting and gaming operator globally, Flutter would exchange 0.2253 new shares in exchange for each TSG share, with Flutter shareholders owning approximately 54.64% of shares in the combined business and TSG shareholders 45.36%.

Flutter and TSG said that the merger would deliver substantial value creation for shareholders from pre-tax cost synergies of £140m per year, as well as potential revenue cross-sell in international markets and lower finance costs.

The two operators also expect the combination to deliver a post-tax return on invested capital that exceeds Flutter’s cost of capital by the end of the third full financial year post completion. Strong free cash flow generation is also expected as a result of the deal.

The combined business would have a diversified geographical footprint and, by offering sports betting, poker, casino, fantasy sports and free-to-play games, a wide product range.

Flutter also noted the merger would accelerate delivery of its four pillar growth strategy, whereby it will maximise profitable growth in its core markets, boost growth in international markets, attain new podium positions in key territories such as Spain, Italy and Germany, and allow it to pursue US expansion opportunities.

Flutter chief executive Peter Jackson, who would assume the same role at the combined business, said: “The combination represents a great opportunity to deliver a step change in our presence in international markets and ensure we are ideally positioned to take advantage of the exciting opportunity in the US through a media relationship with Fox Sports as well as our development of US sports betting through Flutter’s FanDuel and TSG’s Fox Bet brands.

“We believe the combination of Flutter and TSG will deliver substantial value for shareholders. We will have an exceptional portfolio of leading recreational brands and best-in-class products on industry-leading technology platforms.”

Jackson would sit on a 14-person board at the combined business, with other key members of staff to take on certain management roles. Flutter chief financial officer Jonathan Hill would assume the role at combined group, while TSG chief executive Rafi Ashkenazi would serve as chief operating officer.

Meanwhile, Flutter chair Gary McGann would become chair of the combined group, with Divyesh Gadhia, currently executive chairman of TSG, serving as deputy chair. Richard Flint, formerly Sky Betting & Gaming CEO, would become a non-executive director of the business.

“This exciting combination will allow us to enhance and accelerate our existing strategy," Ashkenazi said. "In recent years, we have transformed TSG from a single product operator in poker, to a diverse global leader with multiple product offerings across poker, gaming and sports betting.

“The combination with Flutter will further enhance our company’s core strengths, and position us strongly for the future in this rapidly evolving industry. I’m delighted to be joining the board of the combined group and to serve as its COO.”

The merger remains subject to various conditions, including approval of Flutter and TSG Shareholder. This is not expected to happen until the second quarter of 2020, the deal requiring the support of at least 66% of TSG shareholders in order to go ahead.

Other closing conditions include approval from the FCA, London Stock Exchange and Euronext Dublin, as well as the satisfaction of various merger controls, foreign investment and gaming related approvals in the UK, Ireland, Australia, the US and Canada.

Should the deal gain all of the necessary approvals, Flutter and TSG said they hope to complete the deal during the second or third quarter of next year.

In addition to this, there is also consideration for economic alignment of Flutter’s and TSG’s strategic third party relationships across their US businesses. Flutter has entered into arrangements, conditional on completion of the deal, with Fox Sports, Fastball Holdings and Boyd Interactive Gaming.

Fox Sports, TSG’s US media partner for Fox Bet, will have the right to purchase an 18.5% equity interest in FanDuel Group at its market value in 2021.

"Our Fox Bet partnership is off to a great start, and teaming up with Flutter and FanDuel will allow us to build on that strength and jointly capture the significant market potential ahead of us," Fox Corporation executive chairman and CEO Lachlan Murdoch commented. "We're excited to be able to expand our partnership into FanDuel, which together with FOX Bet, will be a leader in sports wagering in the US."

Meanwhile, Boyd, Flutter’s co-shareholder in FanDuel, and Fastball will receive a payment of 12.5% of the increase in Fox Bet’s market value between completion of the merger and the exercise of Flutter’s option to acquire Fastball’s remaining equity interest in FanDuel in July 2023.

In return, Fox Sports, Fastball and Boyd have waived exclusivity provisions that form part of the existing contractual arrangements in relation to the relevant US subsidiaries of TSG and Flutter.

McGann said: “This is an exciting and transformational combination that will bring together two strong, complementary businesses to create a global leader in the fast-growing online sports betting and gaming industry.

“The combined group will be a strong voice in the promotion of responsible gaming worldwide and will lead industry standards on the protection of customers, whilst building sustainable relationships with them.”