Online gambling group 888 (888) has emerged as the winning bidder for Bwin.Party (BPTY) after months of speculation about who would take over the beleaguered poker and sports betting company. 888’s shares are up 4.8% to 167.8p with the £567 million cap saying the combined group will benefit from significantly enhanced scale, a better product offering and cost and revenue synergies.

Until recently GVC (GVC:AIM) was considered to be the frontrunner in the takeover battle after making a bid of 110p per share last week and securing the backing of Canada-based Amaya Gaming (AYA:TSX). 888’s accepted bid is lower at 104.1p, which suggests Bwin’s management has been won over by 888’s lower perceived regulatory risk and the fact that Bwin won’t be broken up. A takeover by GVC would have likely led to GVC absorbing its sportsbook and Amaya acquiring its poker segment.

H888 - Comparison Line Chart (Rebased to first)

888 also argued there were stronger geographical and technological synergies between the two businesses. Bwin’s Foxy Bingo runs on 888 technology, which should help in integrating the business. The combined business is expected to generate EBITDA (earnings before interest, tax, depreciation and amortisation) of $197.6 million in 2016 and achieve annual cost synergies of at least $70 million by 2018.

Davy says the implied enterprise value (EV) for 888 is $2.4 million, which would result in a 2016 EV/EBITDA multiple of 10.4 and a debt/EBITDA multiple of 2.8 times.

‘We believe that this bid does represent a fair value for the group, albeit it will be interesting to see if GVC/Amaya counter off in the days and weeks to come,’ says analyst David Jennings.

Panmure Gordon has upgraded its recommendation from ‘sell’ to ‘hold’ and increased its target price from 96p to 150p. It says the combined group is likely to be highly cash generative, potentially allowing for future shareholder returns.

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Issue Date: 17 Jul 2015