While the merger has been announced, there are still hurdles to clear. The biggest being regulatory approval by multiple countries, including Australia. According to some regulators, there is a good chance that Flutter may have to sell off Paddy Power in order to complete the merger.
Flutter Merger May Face Regulatory Issues
Gaming company mergers are not a simple process. In addition to the standard procedures that a company has to go through to complete a merger, online casino companies must also gain approval from the regulators of all regions that they serve.
The biggest problem facing the group is in the UK. The UK Competition and Markets Authority (CMA) tends to investigate any merger where the new company will gain more than a 25 percent market share in the region. For the new company formed under this merger, the combined company is expected to have around a 37.5 percent market share.
The combined company will have control of Paddy Power, Betfair, Sky Gaming, and PokerStars. It would also hold at least three of the top gaming brands in the UK. As such, the CMA could bring the merger into question and could bring it to a halt.
The combined company may also cause problems in the Australia online casino market. According to analysts, either the Australian Competition & Consumer Commission or the Australian Competition Tribunal could investigate the deal. Both Flutter and Stars Group have direct competitors to TAB in Australia.
Peter Jackson, Flutter CEO, spoke on potential Aussie regulator problems, stating, “We are very respectful [of the regulators.] We know what we need to do in Australia and will work and engage with them in due course.”
Jackson also put the Aussie regulatory concerns into perspective, noting, “We both run brands in Australia that are trying to take on the might of the TAB, they’re the behemoth in the market and we’re just small corporate bookmakers nipping at their heels.”
Paddy Power Sale May Help With Regulatory Approval
In situations such as these, it’s not uncommon for gaming companies to sell off one of their online casinos or other gaming entities to make a deal work. In the case of the Flutter-Stars merger, it may require the company dropping one of its top brands.
Canaccord Genuity, an investment bank in Canada, made a bold suggestion regarding this situation over the weekend. An analyst for the company stated that the “logical decision” for the company would be to sell Paddy Power.
Paddy Power is one of the oldest online gambling companies in the world. It is one of the most recognized names in the industry. Such a move would likely get the GMA to withhold its investigation as it would bring the combined company’s market share in-line with regulations in the UK.
The move will likely also appease Aussie regulators. Removing Paddy Power from the combined company’s portfolio will make them less of a threat to TAB. This should give them less concern over the new entity.
The merger between Flutter and The Stars Group was announced on October 2nd. Under the deal, shareholders of the new company will have a 54.64 percent controlling interest. After the merger, the new company’s headquarters will be in Ireland. For now, the two companies need to get approval from shareholders, which is likely. Assuming that the companies can get regulatory approval, the merger should be complete by Q2 or Q3 of 2020.