Paddy Power Betfair “a good fit” - Nomura

Paddy Power Betfair “a good fit” - Nomura

Thursday, August 27, 2015
Analyst note suggests merger comes from "strong" performances

The proposed Paddy Power and Betfair merger comes from a position of strength - in contrast to the Ladbrokes and Gala Coral deal - according to financial analyst Nomura.

A link up between the two betting giants was announced yesterday (Wednesday) as the latest in a series of major M&A activities to sweep the industry as it reacts to taxation and regulatory changes across the world.

However, while Ladbrokes has seen its share price plummet by 23.9 per cent since its deal with Gala Coral was announced last month, a Nomura note seen by suggests that the trading performance of Paddy Power and Betfair as well as their core markets and potential synergies make for “a good fit”. Nomura also backed the involvement of Betfair chief executive Breon Corcoran, formerly Paddy Power chief operating officer, who would be head of the proposed Paddy Power Betfair. 

“Unlike Ladbrokes-Coral for which we think the planned merger is ‘defensive’, this proposed merger comes from both companies performing strongly in the fast-growing online market,” Nomura said. “We see material cost savings, and given the importance of Betfair’s core exchange, less potential revenue attrition than two ‘recreational’ brands.

“Culturally, we think the two companies are good fit, given Mr Corcoran’s background and experience at Paddy Power significantly reducing merger execution risk.”

Nomura suggested that the combined group would have 16 per cent market share, much more than William Hill on 13 per cent and Bet365 on 12 per cent, with Ladbrokes-Coral potentially at 14 per cent. It also said that the company will have the No.1 online market shares in Australia online, Ireland and US horse racing.

Paddy Power’s and Betfair’s share prices are both up more than 23 per cent compared to start of the week. Nomura believes that the combined entity could look to cost savings of 10 per cent, much less than the 20 per cent suggested by Ladbrokes/Gala Coral, which the analyst credits to Paddy Power and Betfair having “less geographical and product overlap, eg, only Paddy Power has a B2C presence in Australia and only Betfair has a presence in the US”.

“We think the key revenue synergy is likely to be the marketing reach of combining Paddy Power’s sportsbook with Betfair’s exchange, although at this stage, we do not know how/if this will be integrated,” Nomura said.

“The company most negatively affected by the announcement is Ladbrokes, in our view. Not only will a combined Betfair Paddy Power be an even stronger online competitor, but importantly, we see the likelihood of Paddy Power potentially acquiring a large tranche of Ladbrokes-Coral retail shops necessitated as a precondition of the merger as highly unlikely. We also see this strong competitor as negative for William Hill.”


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