When I last wrote about the gambling sector back in February, I felt that consolidation was in the air. I mentioned that two players, GVC Holdings (LSE: GVC) and Playtech (LSE: PTEC), had openly stated that they were on the hunt for targets.
On The Acquisition Trail
It seemed like GVC had found such a target when, on Friday, the sports betting and gaming company confirmed that it had submitted a proposal to buy one of its rivals, Bwin.Party Digital Entertainment (LSE: BPTY).
Shares in the FTSE 250 company spiked over 11% on the day to 99.45p — their highest level since February — as traders started to factor in a bid premium into the price, coupled with the prospect of a higher bid from another potential suitor.
Only in March, GVC Holdings CEO Kenneth Alexander had admitted that his company could be interested in a bid for Bwin. If successful, the deal would be treated as a reverse takeover due to Bwin’s size. Confirming the approach, Bwin reaffirmed that it was “continuing discussions with a number of third parties”, having received revised proposals.
On Monday of this week, it was confirmed that 888 Holdings (LSE: 888) had also made an approach, in a cash and share offer, already supported by around 59% of shareholders, sending Bwin’s shares over 7% higher on the day.
Not to be outdone, however, GVC and Canadian company Amaya Gaming have teamed up for a bid to purchase and then break up the company.
A Good Strategic Fit?
Amaya Inc, a CAD$4bn+ organisation listed in Toronto, owns brands including Pokerstars and Full Tilt Poker, and is believed to be eyeing up Bwin’s poker assets and possibly its sportsbook.
There is talk of plans between Amaya and GVC to set up a special purpose vehicle to snap up the FTSE 250 firm, in a purchase that would be paid for with a combination of cash from Amaya and GVC shares, although it is currently unclear how this will look or work in practice
The duo are hoping that joining forces will trump the approach from online gambling business 888 Holdings.
The rival suitor said that it “believes that there is significant industrial logic in a combination of 888 and bwin.party, benefiting both companies and all shareholders”.
With the election out of the way, it seems that the Conservative majority has calmed fears that the industry would be further regulated and subjected to more punitive taxes going forward.
Indeed, as early as November 2014, the firm confirmed that it was in talks with “a number of interested parties about a variety of potential business combinations”. Deutsche Bank has been handling the process to date.
Who’s My Money On?
Well, GVC has previous form when it comes to joint takeovers, having teamed up with William Hill a couple of years ago by breaking up Sportingbet. The bookmaker acquired the Australian business and Spanish operations, while GVC took on the assets in countries where the risks are greater because regulations are not as clearly defined.
Since then, the AIM-listed firm has done an excellent job absorbing the unregulated businesses from Sportingbet, streamlining the business and showing good growth, even in the face of a rather weak Euro. Bwin is exposed to these “grey” markets, with roughly half of its revenues generated from countries that lack gambling regulation.
Trading at the company has been weak for some time, and last year it was targeted for a shake-up by American activist investor SpringOwl. It is clear that the company needs to do something to realise its value – given GVC’s past track record, my money is on them.
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Dave Sullivan owns shares in GVC Holdings. The Motley Fool UK has recommended GVC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.