IRISH BOOKMAKER Paddy Power will pay up to €32.8 million for a majority stake in Australian business Sportsbet Pty Ltd, with an option to take it over completely.
The Irish company announced yesterday that it has agreed to buy 51 per cent of Sportsbet, a bookmaker licensed in Australia’s North West Territories, but which trades throughout the country.
Following Paddy Power’s annual general meeting yesterday, chief executive Patrick Kennedy described Sportsbet as a “perfect fit” with the company.
“They have a regulated market, a betting culture and Australia is English-speaking,” he said.
Under the deal’s terms, Paddy Power will pay €27.2 million, made up of €25.7 million in cash and the issue of 100,000 of the company’s shares to Sportsbet’s shareholders. The cash will come from its own reserves.
Paddy Power will pay a further €5.6 million to Sportsbet’s shareholders in 2010 if the Australian company’s earnings before interest, tax and write-offs reach €9.2 million this calendar year.
Its projected earnings for the 12 months ended June 30th are €8.2 million.
The Irish bookie can claw back a proportionate number in Sportsbet shares should earnings in 2010, 2011 and 2012 fall below €6.2 million. If earnings in any of these years are 10 per cent less than the minimum, Paddy Power can buy 10 per cent of the Sportsbet shares it does not own for a nominal sum.
In addition, Paddy Power has an option to buy out the remaining 49 per cent in Sportsbet in 2012 or 2013, at a price of between five and seven times annual earnings.
Mr Kennedy said yesterday that Sportsbet was one of the best-known brands in its business in Australia, and operates online and over the phone.
Australia is the southern hemisphere’s leading horseracing nation, while recent regulatory changes have opened up the general sports betting market there.
Sportsbet’s management, including chief executive Matt Trip, will stay in place.
Four Paddy Power executives, including Mr Kennedy and Breon Corcoran, managing director non-retail and development, will join its board.
Paddy Power told shareholders at yesterday’s meeting that good results for punters left margins in its telephone and internet businesses running below guidance.
But at the same time, the amounts staked with the company in the 19 weeks to May 12th have grown by 31 per cent online and over the phone, and by 1 per cent in its betting shops, when compared with the same period last year.
On the same basis, winnings from gaming and gaming machines have grown by 9 per cent year-on-year.
“Over 70 per cent of our operating profits in the second half of 2008 were derived from online betting and gaming, the overall market for which is projected to continue to grow well, and in which we have a strong record of growing our share,” the company’s statement said.
The group told shareholders that despite facing additional headwinds this year, it is comfortable with market forecasts for its existing businesses, subject to the volatility of sports results.
The company has no debt and €96 million in cash.
