Flutter and TSG Vow $12 Billion Mega-Merger Won’t Be Sabotaged by Coronavirus Crisis

Paddy Power and FanDuel owner Flutter Entertainment, and PokerStars and SkyBet parent The Stars Group (TSG) said this week their planned $12.2 billion merger will go ahead — regulators permitting — despite the financial shock of the coronavirus crisis.

Flutter may be harder hit than its Canadian suitor. That’s because of its greater exposure to the fallout from the cessation of elite sports across the world. The company generated a whopping 78 percent of its revenues from sports betting last year. Earlier this month, it warned investors to expect a hit to profits this year of between £90 million ($109 million) and £110 million ($134 million).

In contrast, despite becoming a major player in the sports betting space through its acquisition of SkyBet, TSG still makes most of its money — some 62 percent last year — from poker and casino games.

Its latest financial update sounded far rosier than Flutter’s. TSG CEO Rafi Ashkenazi said earlier this month he remained “confident in our ability to continue driving revenue growth in the years ahead, despite the inevitable disruption in the sports industry during 2020.”

Strategic Rationale

But there is no suggestion that TSG is getting cold feet. Both companies believe that the vast scale and cost savings generated by the combination will put them in a better position to absorb the financial impact.

According to The Times, the boards of both companies said they had “considered the likely impact on the combined group, [and] they continue to believe strongly in the strategic rationale for the combination.”

“The Flutter board believes that the combined croup will have a robust financial profile, given its strong cash generation in conjunction with expected cost, revenue, and financing synergies,” the company said in a business update last week.

The company has also secured a term loan and revolving credit facility totaling £1.3 billion ($1.6 billion), which it will use to refinance Flutter and Stars Group’s existing debt to increase the financial flexibility of the combined group.

TSG has never declared or paid dividends and is not expected to do so before the merger’s completion.

Market Domination?

The deal still needs to pass muster with UK antitrust regulators, who are currently scrutinizing whether the combined group — which would be the biggest online gambling company in the world by revenue — would be too dominant in the market.

Brands controlled by Flutter and TSG collectively make up around 40 percent of the country’s online sports-betting sector and around 26 percent of its overall online gaming market.

The news of the two companies’ determination to complete the deal comes as sources told CNBC that the gambling industry’s other proposed mega-merger — between Caesars Entertainment and Eldorado Resorts — was still on and would be completed by June.