A Nordic marriage?
With a merged Bwin-Party entity increasing the pressure on other large operators, speculation is rife as to who will be next. But there is one proposed merger that won't see the light of day, argues Dawid Myslinski, analyst for Redeye.
By now you will be familiar with the reasons for the mergers and acquisitions that have taken place in the betting industry. Equally, there is no shortage of speculation as to who will do what with whom next. But there is one merger that I argue we will not see, despite some analysts claiming it would make sense.
The potential merger I am referring to is the one between Nordic powerhouses Unibet and Betsson. There are of course potential synergies between the two companies if put together into one group. Synergies are in this case most obvious on the cost side; headquarters and overheads, R&D, odds compilation, customer support and so forth. However, as the two companies’ customers to a large extent overlap geographically, there will be few synergies from cross-sell.
Since the company’s geographies are not as complementary as those of Bwin and PartyGaming, a hostile takeover by either would be a far too expensive way to go. The alternative would be a merger of equals. But a number of factors also count against this happening.
First, the management of the two companies have historically had totally different views of existing business opportunities. Unibet has made two major acquisitions, while Betsson has made none, officially stating they have been evaluating basically all the deals done in the industry but that none made sense to them. Unibet withdrew early from Turkey, while Betsson continued to accept Turkish clients. Unibet did not hedge its currency exposure from the euro bond, while Betsson even hedges its top-line exposure to the euro. The list goes on.
Second, while Unibet’s strong market position in France made it an attractive partner, unfortunately that all changed (at least for the time being) as the tough French tax regime was introduced and Unibet blocked the French players.
But perhaps most important of all is the dramatic shift in the relative strength of the companies deriving from their market capitalisation. While Unibet was valued at SEK 6.5bn (£628m) as recently as April 2010, the market cap is now down to merely SEK3.6bn (£348m). Even though Betsson’s market cap also has been under pressure since a peak in April, its value is still SEK4.1 (£396m). In August, Betsson for the first time outgrew “big brother” Unibet in terms of market cap.
The performance of Unibet’s shares would put its owners in a weakened position at the negotiating table with Betsson. Pontus Lindwall, Betsson CEO, has a strong track record, and I cannot imagine him agreeing to terms that are less than superb for Betsson, which at the same time would imply a relatively smaller part of the joint company for the Unibet owners, putting a tough obstacle in the way of a potential merger.
Indeed it makes sense to be a dominant player in any market and size is crucial, but my humble opinion is that both Unibet and Betsson are better off looking for partners on fast growing markets outside of Scandinavia.