Shares in Bwin (LSE BPTY) have risen by around 2% today after the company announced that it had received a 110p per share offer from smaller rival, GVC (LSE: GVC) and Canadian betting firm, Amaya. The offer could see Bwin’s operations split up, with Amaya likely to be interested in its sports book and poker offering.
The takeover would be made up of cash and shares and values Bwin at an 11% premium to yesterday’s closing price, with Bwin’s management team apparently in discussions with their counterparts at GVC and Amaya as they seek to finalise the terms of the deal.
A Bad Deal?
Interestingly, Bwin’s share price remains considerably below the offer price, with it currently standing at 101p. This could indicate that the market feels that a deal will ultimately not be done and, with Bwin also announcing that it is on-track to meet full-year expectations, it could be argued that Bwin is worth more than the circa £900m value of the offer.
In fact, Bwin continues to make encouraging progress regarding its planned cost savings as it seeks to turn around three successive years of falling profitability. For example, it is forecast to increase its bottom line by as much as 36% in the current year, which could act as a positive catalyst on the company’s share price. And, with Sports turnover being ahead of expectations, investor sentiment in Bwin could improve and push the company’s share price higher over the medium to long term.
A Good Deal?
Of course, there is also a counter-argument which says that a 110p offer for Bwin would represent good business for its shareholders. A key reason for that is the fact that Bwin trades on a price to earnings (P/E) ratio of 22 and, looking ahead to next year, its bottom line is expected to grow by just 6%. Although that would be in-line with the wider index’s growth rate, it does not appear to warrant such a high rating – especially when Bwin has endured a number of hugely challenging years and its gross win margins were, according to its update, below normalised levels.
Clearly, the online gaming sector is undergoing a period of consolidation, with Bwin being created in its present form via a tie-up with PartyGaming four years ago. And, according to GVC’s management, the deal would create substantial operating and financial synergies, which could result in a more stable, financially sound and profitable business over the medium to long term.
Looking Ahead
With Bwin putting itself up for sale last year and being in the process of divesting a number of its assets, a deal appears to be in the best interests of the company’s investors. After all, competition in the sector is significant and a larger entity could add a greater amount of shareholder value moving forward. Certainly, Bwin’s share price has been a major disappointment in the last three years, with it falling by 40% during the period. However, given its poor performance, an exit price of 110p per share may be a relatively successful outcome for the company’s investors.
