Investors are taking a gamble on bwin.party digital after an activist investor agreed to take a stake in the online gaming group.
Bwin's shares have jumped 5.9p or 5% to 118.9p as SpringOwl Gibraltar announced it planned to buy 6.1% of the business from trusts associated with two of the company's founders Ruth Parasol DeLeon and Russell DeLeon. The DeLeons said last year they were divorcing and agreed to sell their stakes in bwin over three years as part of an agreement allowing the company to apply for a New Jersey licence. The two decided not to make individual applications for the licence, which they would have to have done as bwin shareholders, for reasons of privacy.
SpringOwl - which will also have the right to appoint a director to the board - is managed by Cumberland Associates which said it "typically adopts an active approach to its investments". SpringOwl said bwin had been notified of the deal, which is expected to be completed within the next two weeks.
Analyst Ivor Jones at Numis said the announcement appeared to be the firing of a starting gun, and repeated his buy recommendation and 200p target. He said:
2014 has the potential to be a year of transformation for bwin.party. We believe this will come either: i) from payback on investment in product and marketing coupled with growth in US revenue; or, ii) from a restructuring which releases value from the component parts. Today's news that an activist fund plans to take a stake seems to make the latter more likely.
Jones said a restructuring could involve selling or breaking up the business:
We believe that there are several sources of value to a third-party within the business of bwin.party today:
The nascent US business with its partnerships and, potentially, licensed and taxed revenue could be the route into the US online gambling business for an acquirer.
The technology platform would, we believe, have value to another online gambling company.
bwin.party's brands in markets where the regulatory risk is relatively low could be of value to businesses such as William Hill or Paddy Power that are keen to expand their international footprint and an acquirer with a higher regulatory risk appetite might be able to extract more value from the brands in markets with higher regulatory risk.
There are other activities of value largely hidden within the current bwin.party structure: Kalixa (the payments business), the sports media rights business and the social gambling business.
