Flutter Entertainment agrees all-share merger with Stars Group

Flutter Entertainment has agreed an all-share merger with Nasdaq and Toronto-listed Stars Group, a provider of technology-based product offerings in the global gaming industries and the owner of Poker Stars.

Flutter, formerly Paddy Power Betfair, said the deal will create one of the world's largest online betting and gaming operators.

Under the terms of the transaction, Stars Group shareholders will be entitled to receive 0.2253 new Flutter shares for each of their shares. Following the merger, Flutter shareholders would own around 54.64% of the new company, while Stars Group shareholders would own 45.36%.

Flutter said the deal is expected to deliver pre-tax cost synergies of £140m a year along with potential revenue cross-sell in international markets and lower finance costs. It is also expected to be value-accretive and deliver a post-tax return on invested capital that exceeds Flutter’s cost of capital by the end of the third full financial year post completion.

Peter Jackson, the current chief executive officer of Flutter, will be the CEO of the combined group.

Flutter chair Gary McGann said: "This is an exciting and transformational combination that will bring together two strong, complementary businesses to create a global leader in the fast-growing online sports betting and gaming industry.

"Under Peter Jackson’s leadership we will bring together a management team with the experience required to ensure a successful integration of the businesses, with minimal disruption, during a time of unprecedented change in the sector. The combined group will be a strong voice in the promotion of responsible gaming worldwide and will lead industry standards on the protection of customers, whilst building sustainable relationships with them."

At 0915 BST, the shares were up 14.6% at 8,750p.

Olivetree Financial said: "The market will love this transaction, consolidation has been a well held theme in this space and will be expected to continue. With such synergy potential from stripping out central costs (technology platforms), transactions such as this make terrific sense for all parties - especially given the potential for increased exposure to the developing US market.

"History shows that combinations in this space have generally been able to take out in excess of 10% of combined costs, making for hugely accretive deals. The £140mm cost synergy number outlined today represents some 4.7% of combined cost base, so this should be comfortably achievable even though there will be less technology combining than in other deals of recent years."

Russ Mould, investment director at AJ Bell, said: "After a period in which UK companies’ bombed-out valuations have left them vulnerable to foreign predators it is somewhat refreshing to see a constituent of the London market take the lead as Flutter Entertainment lines up a merger with Stars Group.

"While the UK and Australia will remain core markets, assuming the merger goes through the biggest opportunity is sports betting in the US. The rationale being that increased scale will help create a stronger competitive position.

"Some of the legwork has already been done with Stars teaming up with Fox Sports to launch Fox Bet and Flutter having had a footprint in the US since 2009.

"Regulatory pressures are increasing in most markets and the opening up of sports betting in the US is seen as a major source of growth for the industry.

"There have been false dawns across the Atlantic before. The reopening of online betting in 2013, having been shut down seven year earlier, was seen as a big prize but UK companies failed to capitalise. Flutter will be hoping this deal can help it crack what appears to be a pretty tough nut this time round."