CVC Mulls £750m Gamble On Betfair

[Iron]

http://web.orange.co.uk/article/news/ex ... on_betfair

[Euler]

Original article: -

http://news.sky.com/story/1077839/exclu ... on-betfair

Interesting news. Not sure if CVC can convince major shareholders to part at a reasonable price.

[Euler]

Shares up 10% this morning

[Euler]

Official Betfair statement: -

The Board of Betfair Group plc ("Betfair") notes the press comment over the weekend and the announcement this morning by CVC Capital Partners that they are considering making an offer for Betfair.

There can be no certainty that an offer will be made or as to the terms on which any offer might be made. In the meantime, shareholders are strongly advised to take no action.

Gerald Corbett, Chairman of Betfair, said:

"With our new team now in place and the announcement of a more focused strategy in December, I believe Betfair is currently going through one of the most exciting phases in its development.

Our management team is actively implementing the new business plan for the company and we remain fully committed to delivering on the new strategy and providing improved returns for our shareholders."

A further announcement will be made as and when appropriate.

[Euler]

Nice analysis from a shareholder and former director: -

http://www.markxdavies.com/2013/04/20/t ... tfair-bid/

http://www.markxdavies.com/2013/04/20/fantasy-betfair/

[Euler]

Away from the mechanics of the product, what made Betfair work was that every important stakeholder group thought it was the greatest thing since sliced bread: its staff were all its best salesmen, down to Rita the cleaner; its customers felt so much part of it that they called themselves Betfairians; the media thought the business could do no wrong; the City was desperate for a piece of it; and the Government saw it bringing ideas and solutions to what had been regarded as an opaque and difficult world. That is not to say that it didn’t have its detractors – of course it did – or even that everyone bought all the points just made, because they didn’t. But the people that mattered, sold it. ‘Join the revolution’ was one of our adverts: if you weren’t on it, your friends were asking you why.

One by one those key stakeholder groups fell away, to the extent that only one remains. The staff became unhappy; the customers got up in arms; the analysts and the media went from thinking that the company could do no wrong to thinking it could do no right. Only the Government, basing its view largely on initiatives taken a decade ago, continues to see the business as industry-leading in the areas that matter to it (like problem gambling, for example). The viral nature of Betfair, where its marketing spend was reinforced – not to say subsidised – by its huge army of advocates, ceased to exist. The cost of acquisition no longer benefitted from a network effect, and the company got into a cycle where its marketing spend grew, every year, in parallel with the growth of its top line.

That costs accelerated as money and people were thrown at problems is, I think, widely recognised: that’s why there have been the mass redundancies that have recently occurred. What (I think) is not so well understood is this falling away of the stakeholder groups, and the impact it has had on the business. For me, getting those stakeholder groups back is the key piece to returning the company to where it was – the lead player in a fast-growing niche – and in my opinion, that should not be an insurmountable task. After all, it is possible to identify, in each case, mistakes which drove them away.

Take the premium charge, for example. Someone mailed to ask me about it yesterday, and pointed out that I was quoted, when we introduced it, as saying that it was needed, because without it the cost of acquisition was not matched by the lifetime value of a customer: too much of the money taken from a customer who would then churn away went directly into the pocket of a small number of other clients. I said then that any business that got to where we were would have to introduce the same thing, because otherwise the revenue gained didn’t match the cost of acquiring the customer – and that was an obvious road to the poorhouse.

All that was true. But what my comments, and our strategy, probably didn’t take fully into account was why the cost of acquisition (which was so much lower than other gambling businesses) was rising (or why the network effects were diminishing); or the fact that a consequent drop in the number of advocates meant in turn that the cost of acquisition would go up at the same time as liquidity went down – creating a spiral which was going the wrong way. Replacing lost revenue means increasing tax on the people who are making the money, which in turn means more of them fall away, and the cycle continues. Observers of the broader economy will recognise the pattern.

Before long, the talk became that Betfair had saturated its audience of possible exchange customers, which explained the slowing growth. But I think that view needs challenging, even if just on the basis of anecdotal evidence. I know scores, if not hundreds, of decent-sized, sophisticated punters who don’t use Betfair, which suggests to me that far from saturating its audience, it has barely scratched the surface (and that’s just in the UK). I went to the Open Championship last year with six big gamblers who didn’t have a Betfair account between them.

And I suspect that neither, now, will they ever get one, because there’s no viral effect that will persuade them to join. Betfair is not the company that it was – not in the “those were the days” sense, but in the Star Principle sense: it is not a market leader in a fast-growth area, with advocates everywhere you look. Most think that it was always inevitable that it could not be one for ever, and the fact that it no longer is can never be changed back. But in my opinion two things are true: first, it could so easily still be one, had we made a few decisions differently. And second, pace the person I dined with on Thursday, it would not be impossible to get back to what it had and where it was.

[LeTiss]

I've always enjoyed reading comments from Mark, however his Premium Charge viewpoint amazes me

He now accepts that PC has had a hugely negative impact on BF. I'm staggered that intelligent people within BF didn't see that arising. It just shows how arrogant they became, and thought that they had every punter/trader by the short & curlies, who would just accept it

[jimrobo]

the problem with the premium charge is there are a lot of traders that are in the 30-50k per year bracket. I am guessing these provided a large chunk of the liquidity. When these guys hit the 250k lifetime balance they suddenly make 12.5-20k. Its no longer financially viable for them when thy can go and sit in an office for the same, have an actual career and have all the security that comes with it. The whole thing is in a downwards spiral as time go's forward. If betfair management didnt see that at the start they are starting to see it now. Doesn't matter what they do going forward they have already alienated their top customers.

[AReasonedView]

jimrobo,
That is 100% spot on.

[JollyGreen]

When I think of this subject it always reminds me of the sketch from "One foot in the grave"

Betfair asking clients to come back and/or to accept their crazy PC is summed up by this quote from Victor

"It's like hiring a man-eating shark as your children's swimming instructor. [imitating parent] "Yes, I know it bit my baby's head off last time, but I still think it deserves another chance."

[Euler]

Betfair Group plc

22 April 2013



Rejection of Possible Offer



On 15 April 2013, CVC Capital Partners Limited ("CVC") announced that it was in preliminary discussions with Richard Koch, Antony Ball and partners (together with CVC the "Co-offerors") regarding options in respect of Betfair Group plc ("Betfair" or the "Company") which could include a possible offer for Betfair.



On 19 April 2013, the Board of Betfair received a preliminary proposal (the "Proposal") from the Co-offerors regarding a possible offer for the Company at an offer price of 880 pence per Betfair share in cash or an unlisted securities alternative comprising shares and loan notes (subject to an unspecified overall limit) in a new entity to be incorporated to implement the Proposal. The Proposal was conditional on, inter alia, completion of due diligence, arrangement of appropriate financing and receipt of a recommendation from the Board of Betfair.



The Board of Betfair has reviewed the Proposal with its advisers and rejected it on the basis that it fundamentally undervalues the Company and its attractive prospects, and is highly conditional. The Board is confident in Betfair's strategy and growth prospects as it goes through an exciting phase of delivering the new focused strategy announced in December 2012 and improving the Company's financial performance. Following the completion of its financial year ending 30 April 2013, the Company will provide an update at the time of its post close statement on 7 May 2013 on the good progress in the implementation of its strategy, including cost efficiencies, and recent trading performance.



Gerald Corbett, Chairman of Betfair, said:

"We have a unique business with a market position, profitability, cash flow and prospects that this proposal fails to recognise. Our new management team are implementing the strategy announced in December 2012 and it is this that will realise value for shareholders. We will provide an update to the market on 7 May 2013 to set out the good progress we are making in the implementation of our strategy, including cost efficiencies, and our recent trading performance."

[mugsgame]

My view of this is from how I am seeing the markets I operate in.

Betdaq is gathering momentum quickly now. Like I have said before the final piece in the "jigsaw" is the improved api that will give a matched amount column. The inplay side of things has taken a huhe leap forward recently.

There is only so much of the same money to go around. So obviously the victim of the increase in Betdaqs liquidity is Betfair. What I am starting to see now is gaps appearing in Betfairs markets, the SP has always been iffy, but at the middle to back end of the book it is becoming scary to use. In the big high liquidity markets, and the front of the book things seem mostly unchanged.

What is concerning me is the transition period is entering a critical stage. If things stay as they are there is no doubt in 12 months time Betdaq will be "wearing the trousers" in the exchange game. If this takeover goes ahead and Betfair embrace their heritage and revert back to the "good old days" will it be too late? I think it will. We may be left with 2 exchanges in equal measure and both falling short of what we need.

Saying all that, when 1 door closes another always opens. So I am sticking with a positive attitude to the outcome. In truth I don't care who wins this war. As long as it's viable. I think it's a rock 12 months though, whatever happens.

[Euler]

What I am starting to see now is gaps appearing in Betfairs markets, the SP has always been iffy, but at the middle to back end of the book it is becoming scary to use.

Betfair SP is s shambles recently

[NileVentures]

What I am starting to see now is gaps appearing in Betfairs markets....,at the middle to back end of the book it is becoming scary to use. In the big high liquidity markets, and the front of the book things seem mostly unchanged.

Hi Mugsgame,
To date, I am yet to use Betdaq. Would you mind expanding upon the above statement relating to Betfair. I am unclear of what you, as a more experienced trader, are seeing in parts of the Betfair market that I and others may not be aware of.

[mugsgame]

What I am starting to see now is gaps appearing in Betfairs markets....,at the middle to back end of the book it is becoming scary to use. In the big high liquidity markets, and the front of the book things seem mostly unchanged.

Hi Mugsgame,
To date, I am yet to use Betdaq. Would you mind expanding upon the above statement relating to Betfair. I am unclear of what you, as a more experienced trader, are seeing in parts of the Betfair market that I and others may not be aware of.

The middle/back end are prices maybe 8 plus. getting matched quickly is getting more difficult. Although there appears to be money there, it doesn't get matched, especially if you offer up money.
The long term experience I have of the markets mean that when subtle changes happen you notice them. A good example is in the morning markets. Gaps between prices and very poor volumes matched.