The merger of Betfair and Paddy Power is a merger of winners rather than the merger of an underperformer and its knight in shining armour. That is the most engaging part of the deal. There is a temptation to presume that they will be an overwhelming force of nature when combined. But the thing is, they won’t really be combined.
The companies’ used the phrase “combined group” and announced they would remain as two brands. In effect, Betfair and Paddy Power will continue to operate as two companies with an outsourced central function called Paddy Power Betfair telling them where they can and cannot operate and what they can and cannot afford.
If you read through the articles, press releases and analyst coverage, the most arresting thing that anyone has said or written is that this will create a company with a market cap of around £5bn. That’s a pretty big company. Bigger than Ladbrokes Coral’s £2.3bn. Bigger than William Hill’s £3.1bn.
But that’s about all that can be said for Paddy Power Betfair. Even the name seems dull (Betty Power…now there’s a name). At least Ladbrokes and Coral dropped the Gala.
There is a nice personality story. Betfair chief executive Breon Corcoran returns to the company where he made his name as the all-conquering hero, who took Betfair from borderline to brilliance. Following the departure of his old boss Patrick Kennedy he takes the throne that is rightfully his. Kennedy’s successor Andy McCue takes Corcoran’s old role of chief operating officer.
They are the lucky ones. Like Ladbrokes Coral, this is an old school convergence play. Like Ladbrokes Coral, Paddy and Betfair will retain their distinctive brands and continue running as two companies. This is about cutting costs rather than creating new business. The finance, legal and compliance teams will be concerned. Betfair finance chief Alex Gersh will become CFO of the combined group but his counterpart Cormac McCarthy should not be out of work long if he is discarded.
Betfair might bring some decorum to the Department of Mischief, where Gav Thompson only just assumed the CMO role in June. But the dual-brand strategy should see most of both marketing departments retained.
This is not a geographically expansive merger. One might say that both these merged companies will be unhealthily focused on the UK. Paddy gets its foot in the door in the US – after faffing around so long that the US forgot who it was. Betfair gets a bigger share in Australia, where it has struggled with regulators and sold its operations.
Will William Hill chief executive James Henderson be quaking in his boots? Probably not. If his remit remains to expand internationally, there are still many more bite-sized companies that he could snap up to grow the business.
These companies are now such big beasts – along with bet365 – that the impact will be felt further down the food chain. In a technology-based industry, there will always be room for faster, smarter operators but there will be extra pressure on the mid-tier.
888 will be slightly more desperate today to complete the acquisition of bwin.party. It remains in pole position despite GVC’s vastly inflated offer. GVC is clearly doing its very best to convince the bwin.party board and shareholders that it is not a wise guy happy to frequent the most unsalubrious parts of town but it seems to be failing.
Perhaps the bwin.party shareholders will look at Betfair and Paddy Power and look at their attitude towards unregulated markets. Neither are perfect of course, but they give the impression that they are. This is not a moral judgement or even a strategic judgement on GVC’s approach to grey markets. But the bwin.party shareholders might look at Betfair’s share price and reflect.
In November last year, Betfair’s share price sneaked above its IPO price for the first time in four years. It was £12 a share. Just nine months on the price is almost £30.
Corcoran’s management of Betfair has been almost flawless. And all in all, there is little to fault with this merger. It makes sense, particularly for the all important financial markets. And who knows, maybe they will have some surprises up their sleeves. These two often have. But yesterday’s announcement did little to get industry pulses racing.