Paddy Power set to secure 100% stake in Sportsbet

LISTED BOOKMAKER Paddy Power is set to buy out the remaining 39 per cent stake in its Australian subsidiary for €100 million.

Paddy Power bought an initial 51 per cent holding in Australian online operator, Sportsbet, in July 2009 for €33 million and increased that stake to 60.8 per cent last February.

Yesterday, the Irish company announced it has agreed with Sportsbet’s shareholders to buy the outstanding 39.2 per cent in the company for Aus$132.6 (€100.9 million).

Originally, Paddy Power had the option of buying out the remainder of the company in 2012 or 2013, but Sportsbet’s performance since then prompted it to move earlier than that.

Chief executive Patrick Kennedy said that following the deal with the Irish company, Sportsbet purchased a smaller rival, International All Sports.

Sportsbet’s profits before tax increased 60 per cent to €13 million in its last financial year, which ended on June 30th while its gross assets stood at about €80 million.

Its Irish parent expects the Australian company’s earnings before interest, tax and write-offs (Ebitda - a measure of the company’s cash flow) to be €10 million for the six months ended December 31st.

The deal is likely to boost Paddy Power’s 2011 earnings.

Sportsbet’s shareholders, including its chief executive, Matt Tripp, are taking about €14 million of the purchase price in Paddy Power shares.

The remainder of the deal includes an €84 million cash payment and the assumption by Paddy Power of €3 million in obligations to a number of Sportsbet employees.

The deal includes an earn-out clause under which Paddy Power will pay up a maximum of $25 million Australian dollars if Sportsbet’s Ebidta exceeds Aus $80 million in 2013.

The Irish company is also paying a special dividend of €6.5 million to shareholders in Sportsbet.

Both the Australian foreign investment review board and the Northern Territory Racing Commission must approve the deal.

In addition, Paddy Power shareholders also have to approve and will vote on the proposal at an extraordinary general meeting.

Mr Kennedy said yesterday that Sportsbet’s integration with Paddy Power had been easy.

“What this means for us is that we are putting €133 million to work in one of the few developed economies that has been growing over the last few years,” he added.

He indicated Paddy Power would be open to making further acquisitions once the deal is approved and completed early next year.

At the end of November, it had €150 million in cash balances, which, even allowing for the €84 million committment to Sportsbet, would allow it scope for further purchases.

He didn’t rule out making further purchases in Australia which he said remains an attractive market.

“It’s well regulated, English speaking and it has a population of 22 million who are nearly all sports fanatics,” he said.