Betfair, Ladbrokes shares head in different directions

TAGs: Betfair, cvc capital partners, Ladbrokes

ladbrokes-betfair-stockOn Monday, private equity group CVC Capital Partners confirmed this weekend’s rumors that it was exploring a reported £750m takeover of UK betting exchange Betfair. CVC revealed it has held “preliminary talks” with Antony Ball and Richard Koch, who control 6.5% of Betfair’s stock. Under UK Takeover Panel regulations, CVC has until May 13 to make a formal offer to acquire Betfair. Assuming the offer is tempting enough, Betfair would then open up its financial books for CVC to scrutinize. Betfair chairman Gerald Corbett issued a note to shareholders reminding them that there was no guarantee that any changes were afoot and “strongly advised” them to take no action.

Taking the publicly traded Betfair private could have interesting consequences for the betting exchange. Under new CEO Breon Corcoran, Betfair has embarked on a strategy focused on regulated markets, but withdrawals from grey markets like Germany, Greece and Cyprus have taken a significant bite out of Betfair’s revenues. A private company could have a far greater tolerance for risk in these grey markets. The hubbub was sufficiently frenzied for Betfair shares to close out Monday’s trading up nearly 12% to 782p.

Betfair’s chief exchange betting rival is Betdaq, which was acquired by UK bookies Ladbrokes earlier this year for £30m. When Lads turned in their 2012 report card in February, CEO Richard Glynn stated that 2013 was off to a “promising start” with revenue up 7.2% over the first six weeks of the new year. Lads has now issued a far more dire preview of its Q1 results, saying that while revenue was up 3.2%, operating profit dropped £13m (25.8%) to £37.4m. Glynn also lowered full-year expectations, saying annual operating profit would likely come in around £188m, compared to £206m last year. The warning pushed Ladbrokes’ stock down 8% on Monday, closing at 199.3p.

Glynn said the quarter was “softer” than expected due to a £9m rise in expenses, the imposition of the new 20% gaming machine duty plus a £6m revenue hit from this year’s Cheltenham festival. Cheltenham was particularly brutal on Lads’ Irish operations, which saw revenue fall 8.4%. Lads’ online sportsbook saw revenues rise 13.2%, but online casino fell 11.4%, resulting in a net online revenue decline of 0.7%. The online decline is expected to persist throughout the year as Lads transitions to its new Playtech-supplied online platform, but Glynn claimed to have “a number of initiatives … already underway to redress” some of Q1’s problem areas.


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