Shares in online gaming group bwin.party digital have been on the slide since a major merger in the sector was unveiled last month.
Canada's Amaya Gaming Group said it would pay $4.9bn for Rational Group, owner and operator of the world's biggest online poker company PokerStars. The deal will be funded by a mixture of cash, new credit facilities and equity.
Worries about the competitive impact of the deal on bwin have undermined its shares, but they have edged up 0.45p to 95.5p after a more positive view of the situation.
Referencing comedy classic Dad's Army in a note entitled Corporal Jones versus Private Fraser, analyst Ivor Jones at Numis - the company's advisor - said:
The significance for bwin.party of the acquisition of PokerStars by Amaya has rather polarised opinions. We take the "don't panic" perspective of Corporal Jones (naturally): a major competitor is about to be loaded with debt, lose its founding management and be more exposed to regulators. Private Fraser however says "we're dooomed": PokerStars will get into the US and, in the rest of the world, with added casino games, mop up all the growth in the market. Time will tell who is right. However, one thing is clear from the deal. Online gaming companies can raise more bank debt than we thought.
On that theme, he added:
Does anyone have the phone number for Deutsche Bank, Barclays or Macquarie? It seems the online gambling sector is more bankable than we thought. One of [activist investor] Spring Owl's proposals was that bwin.party should borrow, return the proceeds to shareholders and operate with net debt. Given the risks surrounding the business we thought it unlikely that banks would provide a material amount of debt. And yet, frankly to our astonishment, the banks named above have contributed to providing $2.9bn of facilities to enable Amaya to purchase PokerStars against projected pro-forma EBITDA for 2014 of "$600-640m" or 4.5-4.8 times EBITDA.
Borrowing on these multiples by bwin.party would imply around €530m-€560m of new debt, or 54%-58% of the current market cap. The interims may bring an update from management on bwin.party's borrowing potential.
