Bloomberg News

Sportingbet Turkish Deal Trades Lower Profit for Lower Risk

October 14, 2011

(Updates with closing share price in sixth paragraph.)

Oct. 14 (Bloomberg) -- Sportingbet Plc, an online sports betting company, agreed to sell its Turkish website to East Pioneer Corp. for at least 125 million pounds ($197 million) to boost sales in lower-risk regulated markets at the cost of depressing profit, at least temporarily.

The London-based company had been looking to sell its Turkish unit to clear the way for an acquisition by U.K. bookmaker Ladbrokes Plc; those talks collapsed this week.

Ladbrokes ended discussions in part because of concerns about potential liabilities in Turkey. Sportingbet said today in a statement it’s selling the Turkish unit because regulated- market operations bring lower risks and a promise of higher stock ratings, even though the sale and strategy of moving to regulated markets will at least temporarily lower profit.

“Disposal of Turkey was always a question of when, and not if,” Chief Executive Officer Andrew McIver said in a telephone interview. “We believe the unregulated income stream drags down the group.”

McIver said Sportingbet will start cutting costs to offset the extra costs of taxation and complying with rules in regulated markets. He wouldn’t give details.

Sportingbet rose 0.75 pence, or 1.9 percent, to 39.5 pence. The shares have dropped as much as 36 percent so far this year, giving the company a market value of 261 million pounds.

Bids

The sale of the Turkish unit might increase the possibility of bids from companies such as Betfair Group Plc, Bwin.party digital entertainment Plc or Greece’s OPAP SA, a Collins Stewart analyst, Simon Davies, wrote this week.

Sportingbet said the sale will push the proportion of overall revenue from regulated markets to half, and later to as much as 70 percent.

Still, in Turkey, where online gambling companies operate untaxed, Sportingbet has been generating its highest profit margin by far, according to David Jennings, an analyst with Davy stockbrokers in Dublin.

Sportingbet said the Turkish operations generated 35.2 million pounds in operating profit before central costs, which might represent 84 percent of the company’s earnings before interest and tax, Jennings wrote in a note to investors.

“We believe Sportingbet is doing the right thing strategically,” he said. “While the sale of Turkey is clearly earnings-dilutive, the group’s traded multiple should expand significantly over time.”

East Pioneer has a service agreement with Isle of Man-based GVC Holdings Plc, Sportingbet said in its statement.

Earlier this week, Sportingbet acquired two Danish gambling companies to expand in Denmark, which starts licensing online betting on Jan. 1.

The Turkish sale price is based on Sportingbet receiving a portion of the profit for at least three years.

--Editors: Chris Peterson, Tim Farrand

To contact the reporter on this story: David Altaner in London at daltaner@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net


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