Bookies’ tips are best avoided, not least ones from an Irish prankster at 2.09 in the morning. So no surprise punters ignored July 24’s tweet from Paddy Power, declaring that “hot on the heels” of the Ladbrokes/Coral nuptials, “we can exclusively reveal that we have merged with Betfair. Our new name is Betty Power”.
What a corker that’s proved. So good you wonder if the Financial Conduct Authority might have a nose around. Shares in Paddy and Betfair each jumped by about a fifth yesterday as the pair unveiled a near-£6 billion merger, even if the name, Paddy Power Betfair, is nowhere near as good — worse even than Fairy Power. Still, as the market reaction showed, no one’s grumbling over a deal that gives Paddy shareholders 52 per cent of the combo and an €80 million divvy but puts its old mucker, Betfair chief Breon Corcoran, in the saddle.
The deal brings together the world’s leading peer-to-peer betting exchange in Betfair with Paddy’s quality online sportsbook. As standalone businesses, they were already the most highly rated of the quoted betting groups, mainly due to their focus on the growth bit of the market: mobile betting. Now, while retaining the separate brands the group will become the UK’s digital leader. It will have a 19 per cent market share and a business split 89 per cent online and 11 per cent retail: much more 21st century than Ladbrokes/Coral, weighed down by more than 4,000 betting shops, and a deal more about cost-cutting than growth.
What’s more, Mr Corcoran has form maximising competitive edge. He knows the businesses backwards, having spent 10 years at Paddy before turning up at Betfair in time to see off April 2013’s mooted 975p-a-share bid from CVC. Those shares are now £31.34, after he cleverly exploited Betfair’s ownership of an exchange and a sportsbook, shifting marketing spend and liquidity between them to lure the punters.
Now, he can do that on a far bigger scale: a group with more than £1 billion of revenues. More precise marketing can push the pros to the exchange and recreational gamblers to Paddy, whose client base was built on irreverent ads, such as the odds on two grannies crossing the road, captioned: “Let’s make things more interesting.” Extra scale gives scope, too, to spread regulatory risk from the point of consumption tax and higher machine duty: the impetus for the latest wave of gambling mergers. All Power to Betty, then, for matching two ideal partners.
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Bitter pill for Hill
So, where does it all leave William Hill? The bookie was first out of the stalls this year with February’s abortive £750 million tilt at 888, so it can hardly be accused of not spotting the consolidation trend.
Yet, the UK market leader, with 15 per cent of online betting, is getting outpaced. Paddy Power Betfair will be almost twice Hill’s size by market cap and bigger digitally. Meanwhile, Ladbrokes/Coral will have more shops, even if that’s a dubious accolade. And, now, 888 plans to merge with Bwin.Party, if GVC Holdings doesn’t beat it to it.
Another awkward stat: in the past 12 months, Betfair shares are up 156 per cent and Paddy’s 84 per cent. Hill’s? Just 2 per cent. That pretty much coincides with the tenure of chief executive James Henderson, who’s a lot less visible than his predecessor, Ralph Topping, even if Mr Henderson’s son tried to offset that by going on Big Brother.
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This month’s £16 million diversion into online lotteries hardly moves the dial, and, ahead of the arrival of a new finance director, the half-year figures disappointed. The chairman, Gareth Davis, who has the same job at Wolseley and DS Smith, is said to be happy with Hill’s strategy and doesn’t feel he should devote more time to the bookie. But pressure for a deal will grow. Breaking up existing ones looks tricky. If only he could persuade the Coates family behind the online outfit Bet365 to sell.
A China bull
Who is Sir Martin Sorrell to complain about “parallel universes”? That’s his forte, somehow juggling three time zones while combining running WPP with his full-time job as a 24-hour-a-day financial guru.
True, he was making a simple point: his rivals in the ad industry have taken their habitual optimism a bit far, given the challenges of “tepid” global GDP growth of 3.5 per cent and a deflationary world that allows little pricing power. Given that, the half-year figures look pretty good, with like-for-like revenue up 4.9 per cent and the divvy rising 37 per cent. Sure, slowing China is one of the two big markets driving advertising growth, after the US. But it still only accounted for £1.6 billion of WPP’s first-half billings of £23 billion. Sir Martin can afford to remain an “unabashed” China bull.
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HSS’s eye-popper
You expect more for £13.5 million. That’s the eye-popping sum HSS spent on fees to raise a net £89 million for the company at February’s 210p-a-share float. Since then, it’s had two profits warnings in less than two months, with the shares collapsing to 79p, down another 39 per cent yesterday. Sure, renting out access towers and cleaners to the likes of Heathrow and Sainsbury’s is an operationally geared business, with an 8 per cent revenue miss against IPO forecasts translating into a 55 per cent cut to earnings per share. Yet you can see why Exponent struggled to get this one away, even if chief executive Chris Davies did pocket £2.5 million. Who brought HSS to market? JP Morgan Cazenove, Numis and Berenberg. Expensive business, tool hire.