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CVC Capital considers bid for Betfair

by Jonathan Braude | Published April 15, 2013 at 12:34 PM

Buyout firm CVC Capital Partners Group is calculating the odds of success before taking a punt on U.K. online betting company Betfair plc, but has already hired an investment bank to advise it on a possible bid for the London-listed business.

The odds seemed good enough for the market to push up Betfair's shares to 772.5 pence by the end of the morning on Monday, up by 73 pence, or over 10%, on Friday's close. Following confirmation of CVC's interest, the shares had earlier Monday peaked at 789 pence, equating to a market capitalization of £740 million ($1.13 billion).

CVC confirmed what it called "preliminary discussions" with one of the founding investors, Richard Koch, who still owns 6.54% of the company, as well as Antony Ball and other unnamed "partners."

It made no mention, however, of direct contact with the company's board of directors, and a prickly response from Betfair made clear that it had not been consulted.

Betfair said it was concentrating on delivering a new strategy announced in December and "strongly advised" shareholders to take no action.

CVC, Koch and Ball, who are advised by Robert Leitao of Rothschild, now have until May 13, under U.K. Takeover Panel rules, to make a formal offer for the company or walk away.

Betfair made its debut on the London Stock Exchange in October 2010, with an initial public offering priced at 1,555 pence. The stock performed poorly, largely due to regulatory uncertainty in a number of its international markets. Last year its new CEO Breon Corcoran began withdrawing from difficult or unregulated markets. He has already pulled the company out of Greece and Germany and may exit Cyprus, Russia and elsewhere. Betfair is now focused on regulated markets including the U.K., where income is more secure.

In the six months to October, London-based Betfair announced group revenue of £200.6 million, up 5% on the first half of 2011, with underlying Ebitda of £42.3 million. Although international revenue has fallen following the repositioning, Betfair's earnings have improved in its core market.

In a March financial bulletin Corcoran said: "Betfair performed well in the third quarter and the business is on track against our full year expectations. U.K. revenue was up 6%, driven by the continued strength of mobile betting as well as favourable sporting outcomes."

The largest shareholder is founder Edward Wray, who owns 11.35% of the company. Institutional shareholders, including Japan's Softbank Corp., which owns 10.77% through holding company Charlton Corp. (and took a loss on the value of the holding when it transferred the shares from a previous vehicle, Charlton Acquisition), and British venture firm Balderton Capital, which holds 4.13%, may be keen to sell to CVC at the right price.

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