Canada’s Stars Group in £2.6bn Sky Bet talks

Sky News has learnt that negotiations between Toronto-listed Stars Group and Sky Betting & Gaming about a deal worth approximately £2.6bn have been underway for weeks.

An announcement of an agreed transaction is expected to be made as early as Monday, according to insiders.

If completed, the takeover will be the latest in a rapidly consolidating global industry adapting to an explosion in ‎consumer betting on digital platforms and devices.

Sky Bet is majority-owned by CVC Capital Partners, the private equity firm which used to control Formula One motor racing.

CVC holds 71% of Sky Bet’s shares, while Sky plc, the owner of Sky News, has a 20% stake.

The remaining shares are held by Sky Bet’s management, including Richard Flint, its chief executive.

It was unclear this weekend whether any rival gambling firms were contemplating a counterbid.

At a £2.6bn valuation, senior executives would hold a stake worth close to £240m.

A sale would also crystallise a cash return of roughly £1bn for Sky, the UK’s biggest pay-TV broadcaster, which ‎was close to pulling the plug on a financially faltering Sky Bet a decade ago.

In 2015, CVC bought a big stake in a deal valuing the company at approximately £800m.

Since then, its performance has been transformed, propelled by an explosion in customer numbers from 1.5m in 2015 to 2.6m just two years later.

Sky Bet’s portfolio includes brands such as Sky Vegas, Sky Casino and Sky Bingo, as well as the odds comparison site Oddschecker.

Employing 1200 people and headquartered in Leeds, it saw a 38% increase in earnings before interest, tax, depreciation and amortisation in 2017 to £146m.

Those growth figures provided a strong basis for a London stock market listing that was being planned for later this year.

Rothschild, the investment bank, was hired to advise on the initial public offering, while five other firms were appointed in February to advise on the deal, which would have ranked among the City’s largest in 2018.

Insiders said this weekend that while the flotation ‎plans were on track, the certainty of a full sale had been more attractive to Sky Bet’s shareholders.

While the nature of Sky Bet’s ‎online-only business insulates it from ministers’ plans to slash maximum stakes on the lucrative fixed-odds betting terminals (FOBTs) which populate high street bookmakers’ shops, there is an expectation that the Government will also seek to regulate digital gambling more tightly.

A final decision on FOBTs is likely to be announced shortly, with anti-gambling campaigners calling for the maximum stake to be reduced to £2, which in turn would greatly reduce the £1.8bn in taxes received by the Treasury from the machines each year.

Last month, Sky Bet was fined £1m by‎ the Gambling Commission for failing to adequately protect hundreds of vulnerable customers.

The deal will be transformational for Stars Group, which was previously called Amaya and is focused on online poker operations.

Its portfolio includes ‎brands such as Full Tilt, BetStars and the European Poker Tour.

Buying Sky Bet will diversify it further into sports betting, which comprises a substantial part of the British company’s revenues and has been boosted by its association with the three divisions of the Football League.

The takeover by Stars Group will come little more than a month after the Canadian company said it would buy William Hill’s Australian operatuons by increasing its stake in Melbourne-based CrownBet Holdings.

Stars Group had tried to buy the whole of William Hill in an earlier raid on the London-listed company.

The global gambling industry has been swept by a flurry of multibillion pound deals, including the recent £4bn merger of Ladbrokes Coral and GVC, the Isle of Man-based group.

Goldman Sachs is advising CVC on the talks, while Morgan Stanley and PJT Partners are acting for Stars Group.

None of those involved in the deal would comment on Saturday.