Flutter Entertainment $12.2 Billion Takeover Offer is Credit Positive For The Stars Group, Says Moody’s

Posted on: October 7, 2019, 12:11h. 

Last updated on: October 7, 2019, 02:18h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Last week, Flutter Entertainment Plc revealed a $12.2 billion, all-stock offer for rival The Stars Group. It’s a deal that, if consummated, would create a global online gaming behemoth. Moody’s Investors Service said the proposal is credit positive for the target company.

Flutter’s $12.2 billion takeover offer for Stars Group is a positive for the latter’s credit profile, says Moody’s. (Image: Business Journals)

Under the terms of the transaction, Flutter investors would own 54.64 percent of the new company, with Stars Group stakeholders owning the remainder.

The proposed acquisition is credit positive for The Stars Group because it will result in a combined company with enhanced size, scale, and diversification that will enable it to continue pursuing growth opportunities in the evolving online gaming and sports betting industry,” said Moody’s in a recent note.

The ratings agency has a B2 rating on Stars Group, with a “stable” outlook. That’s a junk rating and bonds with a B mark from Moody’s “are considered speculative and are subject to high credit risk.”

All About Scale

As is the case with other gaming industry acquisitions, Flutter’s move on Stars Group is about creating larger scale. The combined company would have over 13 million customs in 100 countries and, based on last year’s figures, would have a combined $4.68 billion in revenue.

Stars Group, parent company of PokerStars, has already benefited from a favorable deal-making environment in the gaming business. Earlier this year, shares of the provider of sports betting data, among other services, rallied on news that Fox Sports bought a stake in the company. Under the terms of that deal, Fox bought almost five percent of Stars Group, with an option to purchase up to half of the company over the coming decade.

In its current form, Stars Group is itself the product of industry consolidation, having paid $4.7 billion last year to purchase Sky Betting & Gaming (SBG), a deal that made the company, by its own estimation, the largest publicly traded sportsbook in the world.

Due to increased legalization of sports betting throughout the US, gaming companies are looking to tap into that growth, indicating more deal-making could be on the horizon.

The Flutter/Stars deal “speaks to the rapidly evolving online gaming and sports betting landscape, and we expect continued growth in the industry, including in the US,” said Moody’s. “The ability to cross-sell to existing and new customers in poker, gaming, and sports betting through strong brands and strategic partnerships remains key, and we believe this transaction supports those initiatives.”

Cost Savings

Another hallmark of gaming industry acquisitions is that buyers often tout reduced costs, often dubbed “efficiencies” or “synergies.”

The Flutter/Stars marriage is no different, with the companies forecasting about $172.5 million in savings by the end of the third full year following closure of the deal. Via Stars’ relationship with FoxBet and Flutter’s control of FanDuel, the combined company will also enjoy significant brand power in the US.

“The Stars Group’s FoxBet, along with Flutter’s FanDuel, are strong brands with market access in the US, which provides the combined entity the opportunity for continued growth in a market that we expect will continue to expand and grow from a regulatory perspective,” said Moody’s.