Flutter And Tsg Post 2019 Increases Ahead of Merger

If all goes as planned, Flutter Entertainment will acquire The Stars Group sometime in 2020. The original announcement of the merger in October 2019 noted that the companies anticipated closing the deal in the second or third quarter of 2020.

As that time approaches, Flutter and The Stars Group both revealed their 2019 financials last week and both showed full-year revenue increases. Though news later in the week regarding job losses put a damper on it for some, the overall feeling in the business world about the merger is positive.

Flutter 2019 Results

The bottom line of the Flutter Entertainment year was a 14% revenue increase to £2.14 billion for the year ending December 31, 2019.

It wasn’t all wine and roses, though, as the reported profit before tax was £136 million, down from £219 million the previous year. Underlying EBITDA was £385 million, down from £451 million in 2018. And profits attributable to equity shareholders came to £144 million, down from £201 million.

Even so, the proposed full-year dividend per ordinary share remained unchanged at 200p.

And the average number of responsible gambling interactions per month increased to 130,000 from the previous average of 70,000.

Australian revenue alone from Sportsbet was £446 million, up 14% year-on-year despite the cost of sales as a percentage of revenue rising from 30.1% to 40.7%. To combat that, Flutter increased its investment in customer generosity and personalized Sportsbet offerings. That resulted in Sportsbet growing its active customer base by 9%. And stakes increased by 3% from the previous year, though that rose to 5% without counting the World Cup.

The Stars Group 2019 Results

Also known as TSG, The Stars Group announced even better results with a year-on-year revenue rise of 25% to $2.53 billion.

CEO Rafi Ashkenazi praised the company’s constant currency revenue growth of 7% and attributed it primarily to its primary sports betting brands. That vertical now accounts for 81% of TSG’s revenues.

The full-year summary showed that 24.6% revenue increase as well as a 16.9% gross profit increase to $1.84 billion. Operating income was up 1.6% to $264 million, and adjusted ABITDA was up 17.9% to $921 million.

Debts and operation cash were down for the year. Long-term principal debt was down 11.3% and its carrying value was down 9.5%, while operational cash was down 18.3%.

As for TSG in the Australian market, that portion of the company’s revenue was $274.4 million in 2019, up 39.3% from the previous year. Stakes were up to $3 billion, a 17.4% increase from the $2.6 billion in 2018.

On top of that, TSG just acquired the remainder of BetEasy in December for $250 million.

Merger/Acquisition Updates

Combined, Flutter and TSG showed $5.28 billion in 2019 revenue.

Flutter’s financial report noted that the acquisition of TSG is still awaiting numerous approvals from regulators around the world, importantly in Canada, Australia, and the UK.

If and when this happens, TSG shareholders will be entitled to 0.2253 new Flutter ordinary shares in exchange for each TSG common share. Upon the official combination of the companies, Flutter shareholders will own 54.64% of combined stock and TSG the other 45.36%.

Both companies still anticipate the merger to be completed in the second or third quarters of 2020.

Big Goals, Big Expectations

Flutter and TSG tout the anticipated result of the combining of their companies as the key to becoming a “global leader in sports betting and gaming.” The combined portfolio will include “best-in-class products with a broad geographic reach.”

Flutter claims the companies’ combined revenue in 2018 would have been €3.8 billion on a pro forma basis, and the combination will create “low-cost customer acquisition channels while optimizing value through product cross-sell.” The merger, according to Flutter, will create an enhanced global platform and improve reach within local markets.

Both companies have been receiving merger approvals from local markets since late 2019, but the most significant one from a larger regulator came several weeks ago. Flutter announced on February 18 that it received “informal approval” from the Australian Competition and Consumer Commission (ACCC).

While the ACCC has yet to post an official approval of the merger, an official Australian approval will not be complete without the subsequent approval of the Australian Foreign Investment Review Board (FIRB). This process will determine if the details of the Flutter and TSG deal are compliant with the Foreign Acquisitions and Takeovers Act of 1975.

Meanwhile, the UK Competition and Markets Authority (CMA) is doing its own research into the merger. After a period of public comments in February, the CMA then had to decide to approve or deny or pursue a more extensive investigation. The current process could run through the end of March.

Flutter and TSG may receive their answers in time to complete the deal in Q2 2020.