Gambling company The Stars Group Inc. has agreed to a US$6-billion takeover by a European competitor, the latest big deal in a consolidating sector that is looking for growth in the U.S. market.
Toronto-based Stars Group, previously known as Amaya Inc., is to be acquired by Ireland’s Flutter Entertainment PLC in an all-share deal that would give Stars Group shareholders about 46 per cent of the merged entity. Its TSX-listed shares rose 31 per cent on the news to close at $26.49 apiece on the Toronto Stock Exchange.
If completed, the transaction will bring Flutter’s well-known online betting sites, Paddy Power and Betfair, under the same roof as Stars Group’s PokerStars. The combined revenue of the two companies would have been about $6.2-billion last year.
The deal is at least partly motivated by Flutter’s desire to build up its business in the U.S. Last year, the U.S. Supreme Court lifted a long-standing federal ban that made sports betting illegal in most states. Stars Group already has a presence in Pennsylvania and New Jersey. The company recently forged a partnership with Fox Sports, a division of Fox Corporation, that gives it a bigger slice of the U.S. market.
In a statement, Dublin-based Flutter said the combination will result in “substantial value creation for shareholders,” including cost savings equivalent to approximately $229-million a year.
Cormark Securities Inc. analyst David McFadgen said that the transaction is “a bit light in terms of fair value for TSG.” He also said that accepting Flutter stock is a “major risk” for TSG shareholders, considering Flutter’s expensive current valuation.
Amaya, the predecessor to Stars Group, was founded by Canadian David Baazov, who at one point was accused by Quebec’s securities regulator of illegal insider trading. A few years ago, Mr. Baazov also mounted an unsuccessful attempt to take Amaya private.
In 2010, Mr. Baazov, a complete unknown in the online gambling world, took Amaya public for $1 a share. In 2014, the company bought Isle of Man-based Rational Group, the owner of PokerStars for US$4.9-billion. It was a daring transaction that saw a minnow swallow a competitor several times its size.
Overnight, the deal transformed little-known Amaya into the biggest online gambling company in the world and Mr. Baazov, then only 33 years of age, was heralded as a whiz kid.
But, in 2016, the Autorité des marchés financiers (AMF) in Quebec brought quasi-criminal charges of insider trading and stock manipulation against him related to the blockbuster acquisition of Rational Group. Mr. Baazov fought the charges, which were heard a few years later by a Quebec court. Weeks into the trial, the AMF dropped all of its charges against him after lawyers for the regulator committed an embarrassing legal blunder by accidentally sharing more than 300,000 confidential documents with the defence.
Mr. Baazov’s lawyers successfully argued that the AMF’s request to return the documents and carry on as if they’d never been seen them was akin to unscrambling an egg.
In 2016, Mr. Baazov, who by that time had stepped down as Amaya’s CEO, announced a $3.5-billion bid to take the company private. The deal collapsed after The Globe and Mail reported that the head of one of Mr. Baazov’s financial backers, Dubai-based KBC Aldini Capital Ltd., said he had no knowledge of the deal and that he’d never even heard of Amaya.
In the years after the controversies involving Mr. Baazov, Amaya made wholesale changes to its management team and directors, including recruiting Rafi Ashkenazi as its chief executive. In 2017, the company moved its headquarters to Toronto from Montreal and changed its name to The Stars Group.
In the past few years, the company has made a number of new acquisitions, including buying William Hill Australia Holdings Pty Ltd in 2018 for US$234-million and acquiring Sky Betting & Gaming in Britain for US$4.7-billion.
The Flutter acquisition of TSG is expected to close in the third quarter of next year with regulatory approval needed in Britain. Cormark’s Mr. McFadgen said there is “moderate regulatory risk of being turned down in the U.K.”
With a report from Nicolas Van Praet
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