Gibraltar-based lottery betting operator Lottoland is opposing Zeal Network’s proposed takeover of Lotto24 and will make an alternative offer to acquire the business before the end of the month.
Lottoland holds a less than 3 per cent stake in Zeal and believes that the proposed acquisition, first announced in November, “makes no strategic or economic sense” and will result in a massive loss of billings and a substantially lower margin for the combined new group.
“In summary, the transaction destroys significant value,” said Lottoland CEO Nigel Birrell in a letter to Zeal’s board. “Moreover, we do not feel that the transaction has the best interest of all shareholders in mind. We are convinced that more value destruction will come if shareholders do not stop the transaction now.”
Zeal announced an all-share takeover offer for Lotto24 in November, with the company intending to reacquire control of its myLotto24 and Tipp24 subsidiaries and transform its German secondary lottery business into a locally licensed online brokerage model.
Zeal expects to delivers significant benefits for shareholders with expected cost synergies of €57m per year, strong future cash generation, and a reduced risk profile.
“The announced reasons for the transaction are not only vague but unsubstantiated and raise several significant issues,” warned Birrell. “In particular, we believe the board of directors has acted in the interest of certain shareholders and in doing so has not objectively and adequately explored any alternative option which could lead to a better deal for all shareholders.”
Lottoland said that it has conducted extensive outside-in due diligence and will make an offer for the purchase of certain assets of Lotto24, claiming that this will result in a better outcome for all shareholders.
“We will therefore be in touch shortly to engage in conversations with you in order to help us better evaluate these assets, so we can publish our offer by January 31, 2019,” said Birrell.
Lottoland has also called on Zeal’s board to delay the company’s Extraordinary General Meeting (EGM), set for Friday January 18, until shareholders have obtained more information on the transaction and Lottoland’s alternative proposal has been “objectively and adequately assessed”.
In response, Zeal issued a statement dismissing Lottoland’s concerns, claiming instead that its intention is to interfere with the planned takeover of Lotto24 and spread uncertainty.
“Given Lottoland's obvious position as a direct competitor, Zeal cautions all shareholders to treat their comments with due skepticism,” said Zeal.
Zeal added that since announcing the planned takeover of Lotto24 seven weeks ago, it has not received any proposals for alternative transactions. The company added that its board remains open to discussing serious alternative proposals until next week’s EGM.
“We firmly believe that, of the alternatives we have considered, our proposal to reunite Zeal and Lotto24 has the strongest strategic rationale, offers the best opportunity for sustainable growth and creates the most value for Zeal's shareholders,” said Zeal chief executive Helmut Becker.
“Strong opposition from a competing secondary lottery operator is clear and compelling evidence that our transaction is the best way forward for our company and our shareholders.”
Shares in Zeal Network SE (FRA:TIM) were trading up 3.44 per cent at €22.55 per share in Frankfurt Tuesday morning.