bwin.party digital entertainment plc was the result of the merger between PartyGaming Plc and bwin interactive entertainment AG, which occurred on March 31st 2011. bwin.party became the largest publicly traded online gambling operator worldwide, as former Party Gaming shareholders own 48.4% of the new entity, while the remaining 51.6% of the shares are controlled by bwin. The online gambling company is based in Gibraltar, while former bwin Chief Executive Officer Norbert Teufelberger and former PartyGaming CEO Jim Ryan act as its co-CEOs. Listed on the London Stock Exchange (LSE) under the ticker ”BPTY” and included in the FTSE250 Index, the company maintains leading positions in the four key market segments (online sports betting, poker, casino, bingo) and controls several of the largest online gaming brands on a global scale (bwin, partypoker, partycasino and Foxy Bingo).
The first rumors that the two companies were considering a merger, appeared in November 2009, but were validated with the release of a joint statement on August 26th 2010. A 478-page prospectus including detailed information and an outline of the merger was sent to shareholders of both companies in December 2010, while the merger itself was endorsed on January 28th 2011. Shareholders of bwin were to control 12.23 shares of PartyGaming for each of their own. Taking into consideration the closing price of PartyGaming’s shares at 257 pence on July 28th 2010, the deal was valued at GBP 1.13 billion (USD 1.76 billion back then). According to the prospectus, existing bwin shareholders who voted against the merger at the bwin General Meeting, had their objection noted in the minutes of the bwin General Meeting and requested cash compensation within 1 month of the Meeting, would not receive any new shares, but would receive cash compensation of EUR 23.52 per existing share in bwin.
The prospectus stated that the deal would create a well-balanced revenue base by product, territory and channel. Alongside large B2C operations, the combined entity would be well positioned to further develop its B2B offering to international corporate customers and governments. The company was believed to have been able to achieve annualized gross pre-tax cost synergies (before amortisation) of about EUR 42 million, estimated gross annualized pre-tax synergies of about EUR 55 million and meaningful annualized net revenue synergies of at least EUR 13 million.
On December 17th 2010 PartyGaming Plc and bwin interactive entertainment AG received antitrust approvals in Austria and Germany, the approval of the Gibraltar Licensing Authority and the Alderney Gambling Control Commission, in each case, that was related to the merger.
The ”Key” Partnerships
Zynga and bwin.party
On October 25th 2012 bwin.party announced that it had entered into an exclusive partnership agreement with Zynga Inc., a leading provider of social game services on a global scale, with the main objective being the development and operational activity of real money online and mobile poker and casino services in the United Kingdom. According to the agreement struck, bwin.party was to provide the operating platform, software and the requisite support in order to maintain Zynga’s real money poker and casino gaming options. The services were initially planned for players based in the UK, while business operations were to be exercised under bwin.party’s gaming license from Gibraltar. The Real Money Gaming (RMG) partnership between bwin.party and Zynga was launched in April 2013.
On February 26th 2015 Zynga customers were sent emails, where it was pointed out that operations such as ZyngaPlusCasino and ZyngaPlusPoker were to be terminated within a few weeks, while every customer balance had to be withdrawn. This announcement came as a result from the RMG partnership termination between the Zynga and bwin.party. However, Zynga did not openly state the reason why it decided to leave the UK social gaming market and to put an end to the agreement with bwin.party. Speculations appeared that way too high costs, decreasing revenue and stock price may have been the factor behind that decision. Various media stated an almost 16% decline in Zynga’s share price year-to-date in mid-February. This has been a sad end to an initially impressive endeavor.
PokerStartegy and bwin.party
On December 28th 2012 all contracts between PokerStrategy and bwin.party brands were terminated. New customers were no longer able to sign up at PartyPoker, bwin and WPT Poker rooms through PokerStrategy.com. However, existing players were to be provided with StrategyPoints until the end of 2015. Again, no further details on the affiliate program breakup were presented. There have been opinions, which stated shrinking affiliate revenues might have been the reason behind program termination.
This announcement came after in July 15th 2012 PokerStrategy put an end to their agreement with 888 Poker, while months later, in November, Tradimo.com, an educational website for financial trading, was launched.
New partnerships on the horizon?
GVC Holdings Plc, a sports betting and gaming company, recently announced that it placed a bid for bwin.party digital entertainment plc. According to GVC’s statement, in case bwin were to give a green light to the deal, the latter would be considered as a reverse takeover, because of bwin’s sheer size. As of May 14th 2015, bwin had a market capitalization of almost GBP 734 million (or USD 1.15 billion), which exceeded GVC’s value more than twice.
In November 2014 bwin.party said it was considering a number of business propositions by interested parties, while on May 15th 2015 the combined group confirmed it was holding talks with a range of third parties, including GVC Holdings.
In addition, on May 18th 2015 the UK gambling operator 888 Holdings confirmed that it had submitted a takeover bid for bwin.party. Following the announcement, the shares of the combined group soared over 10% to reach 109.8 pence as at 9:20 GMT the same day.
“I certainly think it’s realistic to think you would get an offer pitched at the 115 (pence per share) level. Possibly higher if you’ve got multiple bidders,” Simon Davies, an analyst at Canaccord Genuity said, cited by Reuters. Such a price level would boost bwin.party’s market value to about GBP 950 million (or USD 1.50 billion).
According to gaming analysts, a merger between 888 and bwin.party is likely to take place, as they will be able to cut costs related to licensing in various regulated markets and also to advertising. 888 would introduce its operations to other markets, due to the fact that bwin.party’s sports betting business is remarkably larger.
”A Strategy that Lacks Understanding”
Jason Ader, an activist investor whose SpringOwl investment vehicle controls 5.2% of bwin.party, has not once criticized the combined group’s strategic course and managerial decisions. In 2014 he launched the Savebwinparty.com website in order to present in details his disapproval of bwin.party’s strategic approach.
According to Ader, several key moments have led to the current state of the company.
First, in April 2013 the combined group decided to reduce its activity in 18 grey markets. From April 30th forward, no new players based in Argentina, Armenia, Belarus, Brazil, Colombia, Croatia, Cyprus, Finland, Greece, Hungary, Latvia, Lithuania, Macedonia, Poland, Romania, Serbia, Slovenia and Ukraine were able to sign up accounts with bwin.party. Ader approved the idea of boosting the company’s presence in regulated markets, but, in his view, “grey regions” could still generate higher margin cash flow, which could be re-invested in product development and marketing activities, while the latter would enable bwin.party to increase its share in regulated markets. Ader proposed that the above mentioned grey markets could still be serviced under the cross-border services principles postulated by the Treaty on the Functioning of the European Union (TFEU).
Second, the termination of the agreement with PokerStrategy in December 2012 was also questioned, because, according to Ader, that affiliate program contributed to 50% of all new poker players. In addition to the higher costs to customers on some payment methods imposed by the PartyPoker brand and the reduced marketing expenditures on poker, Ader stated that the managerial body of the combined group has been ”pursuing a strategy without understanding either specific product concerns or the long term consequences of such a strategy.”
Third, the merger between the two entities was not successful in generating the synergies, proposed in the prospectus. bwin.party management claimed that the synergetic effects resulting from the merger had surpassed forecast figures. Ader, on the other hand, stated that within the period 2010-2012 costs surged 3.1%, while the group’s revenue dropped 1.5%. What is more, the 52-million-euro cost cuts in 2013 were mostly due to axed marketing expenditures, rather than an increased synergetic effects.
Fourth, Ader stated that the two entities had 3 700 people in employment before the merger, but he was later led to believe that there were ”close to 4 000 people employed either directly or indirectly” by the group. According to the investor, at present, the tech department only is comprised by “close to 1 600 people – far in excess of any comparable organization”. In addition, the fact that the tech team is operating from five different countries could suggest potential inefficiencies in its performance.
Fifth, Ader criticized the new executive compensation program, which was proposed at the General Meeting on February 24th 2014. Back then bwin.party revealed that it considered a change of its bonus program concerning senior managers. The program was changed from one based on the group’s share price to one based on a set of key performance indicators. The reason behind that decision was probably the fact that bwin.party’s share price failed to approach the level, which had been projected by the management during the months preceding the merger of the two companies. This, on the other hand, meant that the chief executives did not obtain the bonuses they had anticipated. To receive a bonus, although you failed to achieve the results planned is hardly a surprise. In the past, multi-million bonuses have been distributed among top managers, especially in the western private banking sector, regardless of the fact they did not fulfil expectations. However, the laws of gravity may not always be applicable! In the case with bwin.party, 69.66% of shareholders voted in favor of the new bonus scheme at the February 2014 General Meeting.
Having exposed the ”ill moments” in bwin.party’s strategy, Jason Ader proposed a possible solution, so that the group can escape from the downward spiral. He suggested an urgent re-consideration of the strategy – from volume to value. Or, bwin.party needs to return to its core real-money betting business. In order to facilitate investment growth in areas such as marketing, product development and mobile technology, in Ader’s view, the company may sell its Kalixa online payments division and the Sportsman Media Group sports rights offshoot. The investor warned that such measures may hurt profitability in a short term, but they were necessary in order to prevent further decline.
Key Financial Indicators
For the entire 2011, the combined group reported total revenue at the amount of EUR 691.1 million, clean EBITDA of EUR 168.3 million and a loss for the whole year of EUR 431.0 million. According to the group’s statement on financial position, its total net assets amounted to EUR 783.2 million. The company’s debt to equity ratio was 0.67, which suggested it financed business growth with moderate debt.
For the entire 2012, the group reported a 15.99% growth in total revenue to EUR 801.6 million, but its clean EBITDA went down 2.02% to EUR 164.9 million due to more considerable distribution expenses compared to a year ago. The annual loss shrank to EUR 64.7 million, while total net assets decreased 15.91% to EUR 658.6 million. The company’s debt to equity ratio was little changed at 0.66. bwin.party increased the share of its non-current assets to 68.91% of the asset structure in 2012 from 60.89% in 2011. The share of bwin’s non-current debt also rose to 37.98% of the debt structure in 2012 from 28.87% in 2011.
For the entire 2013, the combined group reported an 18.61% drop in total revenue to EUR 652.4 million, while its clean EBITDA shrank 34.51% to EUR 108.0 billion due to lesser net revenue from continuing operations compared to 2012. The annual net result was a profit of EUR 41.1 million due to lesser amortization costs compared to 2012. bwin.party’s total net assets expanded 2.88% to EUR 677.6 million, while its debt to equity ratio decreased to 0.48. The share of the company’s non-current assets remained marginally stable compared to a year ago. On the other hand, bwin.party boosted the share of its short-term debt to 77.37% of the debt structure in 2013 from 62.02% in 2012.
For the entire 2014, the group reported a 6.21% drop in its total revenue to EUR 611.9 million, which has been the lowest figure since the 2011 merger. In addition, the company’s clean EBITDA decreased for a fourth consecutive year to reach the lowest level since the merger at EUR 101.2 million due to more significant administrative expenses in comparison with 2013. The annual net result was a loss of EUR 94.3 million. bwin.party’s total net assets decreased 16.62% to EUR 565.0 million, which has been the lowest level since the 2011 merger. The group’s debt to equity ratio increased to 0.62, which may be related to the increased share of the short-term debt to 80.03% of the debt structure in 2014 from 77.37% in 2013. This facilitated a modest increase in the company’s current asset share to 31.88% of the asset structure in 2014 from 31.20% in 2013.
Share Price Technical Outlook
Source: Investing.com
Since the merger of the two entities in March 2011 bwin.party’s share price has been in a decline. The first prominent swing low was registered in early April 2011 at 118.00 pence, followed by a three-month congestion area, after which the price slipped to a second, lower swing low in mid-August 2011 at 98.50 pence. That low belonged to the third bar in a group of three doji-like bars, which formed a relatively tight range. In late August 2011 a breakout to the upside from that range occurred, but it appeared indecisive (lots of doji bars) and the price went down again forming a second low in early October 2011 at 99.27 pence. Since a double bottom formation was present and the second low was a higher one, the market reversed its direction. The move was supported by the Moving Average Convergence Divergence (MACD) and the Directional Movement Index (+DI crossed the -DI in a bottom-up manner).
In January 2012 bullish momentum stagnated, with the price reaching the first prominent swing high since April 2011. This occurred in early February 2012 at 177.00 pence. The latter was a lower-high test of the April 11th 2011 bar’s high (182.20 pence) and also belonged to a tight-range bar. The next bar produced a breakout below the low of the tight-range bar, followed by six consecutive bars having lower lows compared to each other. Then a congestion area formed and in late April 2012 a breakout to the downside occurred. The MACD and the DMI supported the move to the downside, while the Relative Strength Index (RSI) moved below its 50.00 level. The move down drove the price to a new swing low in late July 2012 at 91.90 pence. The bars representing the period July-August 2012 formed a relatively tight range and in early September 2012 a breakout from the upper boundary of the range occurred. The price pierced the 50-day Exponential Moving Average (red on the chart) to the upside until in October 2012 a congestion area was formed. The breakout from that area occurred in early November 2012 and was to the downside.
Then, on several occasions the price encountered resistance at the 25-day Exponential Moving Average (blue on the chart) until in late January 2013 a breakout above that EMA occurred. It drove the price as high as 159.50 pence in late February 2013 (a lower high compared to that in early February 2012), while the RSI touched its overbought level (green), which signaled a reversal to the downside. Shortly after that the market formed a relatively wide bearish channel (marked by the two yellow lines) and has been moving within it ever since.
On April 1st 2015 bwin.party’s share price plunged to its lowest level during the period after the March 2011 merger at 70.40 pence.
As of late, the MACD pointed that bullish momentum has begun to build up. In addition, the RSI has just passed its key 50.00 level and the DMI also suggests that the bull move may continue (the +DI (green) is set to cross the -DI (red) in a bottom-up manner). The price has already breached above the 25-day EMA (blue) and if it closes above the 50-day EMA (red) as well, it will probably test the 100-day EMA (white) first and then, the upper boundary of the channel. An eventual breakout and a close above the upper channel boundary may fuel the up move. However, channels should be treated with caution, because breakouts may occur from either side.
Source: Investing.com
