The gambling operator formerly known as Paddy Power Betfair recently saw an anomaly that it hasn’t been able to explain. Paddy Power Betfair, now known as Flutter Entertainment, saw its stock price jump 20% on the London Stock Exchange this past Monday morning, reflecting the largest single-day gain since August 2015. That jump followed an announcement that then-Paddy Power was joining forces with Betfair and, when the stock rose this past Monday, rumors started circulating that another merger was in the works. Flutter has denied those rumors and the market has reacted accordingly.
It’s common for casino stocks to jump suddenly when a sale, merger or acquisition is announced. Since Flutter’s stock has been relatively calm lately, the sudden jump was seen as a sign of some deal being discussed. However, Flutter said on Wednesday that it knew of “no material reason” why the price would have increased.
The culprit behind the rumors appears to be the Financial Times and its Alphaville website. On the site’s Daily Markets Chat message board, the company wrote, “There are a number of ideas underpinning the [share price] move, the most interesting (needless to say) is speculation about a buyout/take private. We don’t have any name connected to that, to be clear, though PE [private equity] would be an obvious candidate. Blackstone’s Merlin bid suggests there’s a reasonable amount of cash available to managements who feel the public markets are undervaluing them.”
Flutter being sold or involved in a merger is not a crazy idea—Caesars had discussed a merger with William Hill worth $7.6 billion before the deal fizzled. In addition, Deutsche Bank analysts, as recently as this past Tuesday, have asserted that the U.K. online gaming sector is “poised for consolidation,” adding, “We see the scope to create value from another wave of consolidation, with rising regulatory and marketing costs encouraging a drive for scale, given material cost synergies.”
However, Flutter was never mentioned as a potential candidate for a deal. Adding to the mystery is the amount of work Flutter has been doing to expand its footprint and take on new operations in new markets, such as the recent acquisition of Adjarabet in the Republic of Georgia. To make things even more intriguing, Deutsche Bank had only given Flutter a rating of ‘hold’ the day prior to the 20% jump, meaning that there is still no clear explanation as to why Flutter investors suddenly saw a nice bump in their returns.
