Flutter and TSG merger on track despite Covid-19 pandemic

Flutter Entertainment, the parent company of Paddy Power Betfair, has said its proposed mega-merger with The Stars Group (TSG) remains on track despite the outbreak of novel coronavirus (Covid-19), with the two operators announcing further details about the deal.

The merger, announced in October last year, will see Flutter acquire all shares in TSG and join together to create a combined business with annual revenue of £3.8bn (€4.2bn/$4.6bn).

Flutter this month entered into new debt arrangements comprising a term loan and £1.3bn revolving credit facility, to be used for refinancing existing Flutter and TSG debt, as well as provide ongoing financial flexibility.

The new financing facilities are contingent on the merger going ahead, with the deal expected to be completed before the end of the second quarter, subject to it securing relevant regulatory approvals.

Meanwhile, Flutter said that while the combined business will have a robust financial profile, given its strong cash generation in conjunction with expected cost, revenue and financing synergies, this is likely to impacted by the global Covid-19 in the current financial year.

Flutter said while it expects this to reduce over time, leverage of the combined group at the end of the first financial reporting period following completion is now likely to be above 3.5x, excluding synergies.

In terms of dividends, subject to approval, existing Flutter shareholders will be entitled to receive a final 2019 dividend of 133 pence per Flutter ordinary share. However, given the impact of Covid-19, the Flutter board will propose that this be paid in ordinary Flutter shares rather than cash.

When the merger was first announced, Flutter said its shareholders would be entitled to a pro-rated dividend immediately prior to completion. However, given the anticipated financial profile of Flutter in the current year, the Flutter board said it no longer considers it prudent to propose this.

TSG has never declared or paid dividends and is not expected to do so prior to completion.

For the combined group dividend policy, Flutter said the disruption caused by Covid-19 means it will suspend the dividend for the current financial year. The board will monitor the calendar of sports events and the performance of sports betting, as well as the combined group's anticipated deleveraging and balance sheet position, before deciding when to reinstate a dividend.

Meanwhile, Flutter and TSG have come to an agreement as to who will serve as directors at Flutter. Divyesh Gadhia, who is currently executive chairman of TSG, will become deputy chair of the group, following completion of the merger.

TSG chief executive Rafi Ashkenazi will act as a consultant to Flutter and join the Board in a non-executive capacity. Richard Flint, Alfred Hurley, Jr., David Lazzarato and Mary Turner will also become directors.

Subject to completion, Jan Bolz and Emer Timmons will step down as non-executive directors of Flutter, while Ian Dyson will step down from the audit committee and will relinquish his roles as senior independent director and chair of the nomination committee. Andrew Higginson will instead take up these positions.

Flutter and TSG will public a circular in relation to the merger later today, with a prospectus due to follow before the end of the month.

“In these challenging times I am more convinced than ever of the strategic fit of these two complementary businesses,” Flutter’s chief executive Peter Jackson said. “The combined business will enjoy improved geographic and product diversification and allow us to advance our strategic goals.

“I am delighted that Rafi has agreed to join the Flutter board and to be available to me as a consultant given his extensive knowledge of Stars’ international business.

“We continue to work with various competition and anti-trust authorities globally to secure the few remaining approvals required. We do so while never losing sight of our current primary objective to ensure the safety of our staff and customers during these unprecedented times.”

Flutter chair Gary McGann added: “I am looking forward to working with the new Flutter board in realising the exciting opportunities that will emerge from the combination of these two great companies.

“I would like to take this opportunity to note the commitment and dedication shown by Emer and Jan during their time on the Flutter board, to thank them for their support and to wish them both well for the future.”