Cash woe may spark bid for Sportingbet

[TheGeneral+]

Sportingbet, the online gambling group, admitted yesterday that it might be taken over as it struggles to fund a big acquisition it made in 2001.

The company said it is trying to find new sources of funding and one of the parties to whom it has been talking to could make an offer.

However, Sportingbet shares plunged 6p to 30p because it warned that any offer for the company could be pitched at below the current share price.

The group faces an uphill struggle to fund the payment of an "earn-out". As part of its acquisition of the US online bookie Sportsbook in 2001, it promised up to £103m in cash and shares to the vendors if profits hit certain targets.

The exceptional performance of the business since then means all this becomes due in September this year leaving Sportingbet's finances stretched and its shareholders facing massive dilution. Keith Payne, chief executive, said the cash liability to Sportsbook's founders was "about £20m" although some analysts thought it could be higher.

Mr Payne said Sportingbet's bankers had agreed a £20m overdraft but the group was exploring other ways of raising the funds.

The share price had spiked higher on market speculation of a management buy-out, which Mr Payne described as "a false rumour". There was speculation yesterday that the Sportsbook founders may use the cash they are owed to fund a bid for Sportingbet, particularly since the share proportion of their earn-out would leave them with sizeable holdings.

Mr Payne said: "The shares have gone up 100 per cent in 10 days. Ten days ago I may have said the offer could come at a significant premium to the share price."

http://news.independent.co.uk/digital/news/story.jsp?story=401657

 

[Buzzsaw]

I sure hope they get this settled by football. If this book goes down the industry will be is some serious trouble.

I can't believe with their $60 mil market cap there is not a buyer. Incredible.

 

[Halifax]

The shareholders have reason to worry.

As for the bettors, I think there is very little risk in having your money at SportingBet or their sites. WHOEVER ends up in control of the company will have a large multinational "going-concern", and it is very unlikely that they will risk jeopardizing it by stiffing any of the players.

 

[miamiman]

Buzz, its not that easy , they have alot of debt and obligations to meet over the next 6 months. Some good people at that company though.

 

[peskypup]

as I have posted before, many shrewd people take the view that sportingbet plc has a reasonable chance of ending up with the liquidators, as opposed to a trade sale.

The liquidator could then sell off the websites to interested parties.

It is NOT a foregone conclusion that your money as a punter is safe in this book. I keep my overall balance in this company to within strict limits.

Overall, I would say it is -400 that there will be some sort of deal before the earn-out obligations are due, and +300 that the liquidator ends up running the show.

 

[TheGeneral+]

<BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR> If this book goes down the industry will be is some serious trouble.
<HR></BLOCKQUOTE>

Buzzsaw,

Could you elaborate on this? What effect do you see happening here?

Thanks

 

[sb.com]

"As for the bettors, I think there is very little risk in having your money at SportingBet or their sites. "

Yes, this is not an issue, never has been and certainly is not at this point in time. All is well..

jeff

 

[TheGeneral+]

SPORTINGBET, the online bookmaker targeted by Evil Knievil, the bear raider, admitted yesterday that it had received an approach, but poured cold water on hopes of a knockout bid.
Responding to the doubling of its share price from a recent low of 18p, the group admitted that it had received a “very, very informal” approach from an unnamed party. However, it indicated that the approach was at a level below the prevailing share price of 38p, with one source suggesting a figure of about 30p.

The group said the approach had come from one of the parties that it had been talking to about raising additional funding. Sportingbet has been seeking new funding to repay a £20 million bridging loan taken out with Barclays last year to cover an earnout on the acquisition of Sportsbook in 2001.

Nigel Payne, Sportingbet’s chief executive, said that he hoped to resolve the funding issue in the next four to six weeks and was looking at a variety of solutions, including “bank options and equity options”.

He said, however, that the potential bidder in question was neither a venture capitalist or a bank.

The company said that any offer would probably be dependent on due diligence, a board recommendation and the support of Sportingbet’s biggest shareholders.

The shares fell from 36p to 30p, valuing Sportingbet at £46.2 million.

The man who succesfully shorted...

Evil Knievil is the sinister sobriquet of Simon Cawkwell, a self-styled stock market stuntman, who makes money from share prices going down rather than up. Educated at Rugby and an accountant by profession, he thrives on the margins of the City, taking a savagely contrarian view of the prospects of companies and the economy at large.

He greeted yesterday’s news from Sportingbet, a stock high on his shorting list, by selling stock at 28p a share to add to his short position which began with his selling one million shares at 100p. He bought back half a million shares at 70p — netting a tidy profit — and has kept the remaining half million shares open. He said: “I don’t believe that this is a properly financed company.”

His appetite for profiteering from the demise of companies prompts mixed reactions, including his being accused of “planting false rumours” and “terrorising the City”. The companies he has successfully sold short, including Maxwell Corporation, Polly Peck, Spring Ram, Marconi and others, suggest his rumours are based in fact. A bon viveur and gambler, he has savoured the stock market’s decline. Last year alone, he is said to have made a £3½ million profit.

http://www.timesonline.co.uk/article/0,,5-663713,00.html

 

[Buzzsaw]

A collapse by Sporting bet could well spur additional legislation. This time under the guise to protect Americans if Sportingbet was to outright fail.

A failure would also badly damage the industry credibility like nothing we have seen before. AcesGold was child's play compared to a Sportingbet collapse.

This could be an Enron type situation and there is more risk here than some are willing to consider. But for those that can stomach a little downside I would suggest buying the stock SBT in the 26p - 30p range. The valuation of $45 mil. GBP just doesn't seem like much downside. The names Sportsbook.com and Sportingbet as well as many others are just about worth the entire asking price of the market cap.

 

[TheGeneral+]

Thanks Buzzsaw.

Appreciate the insight.

 

[peskypup]

It is by no means a "given" that Sportingbet finds a trade buyer or that its website assets are worth $45m ow whatever to current shareholders.

Consider the following scenario:

1. Sportingbet runs out of cash to fund it's earn-outs, income taxes, whatever.
2. The liquidator arrives.
3. Liquidator sells website assets to highest bidders for knock-down prices.
4. Liquidator pays out 5 pence in the pound to unsecured creditors which includes all customers with balances.

This whole process takes 3 to 5 years and involves paying millions to the liquidator who normally doesn't give a toss about unsecured creditors.

This is how UK insolvency law works. None of this Chapter 11 stuff where the company is kept afloat for a few years to try and sort itself out.

Anyone who thinks their balance is bomb-proof safe in Sportingbet please do 2 things.

1. Wake up.
2. Call me to invest in a gold mine I am setting up in the Amazon rain forest, only 10,000 shares being issued at $500 apiece - my geologist reports that this mine should make California 1849 look like chicken feed.

 

[Buzzsaw]

Yep,
Good post Pesky. It could get Enron ugly at SBT. (key word being "could")

BTW; I don't believe clients funds are subordinated to debt holders either secured or unsecured. But I could be wrong...

 

[Halifax]

Won't happen.

There may be the ownership struggle, which is becoming more and more apparent ...

But WHOEVER ends up with control of the company, it is highly unlikely that the bettors are at risk, since SportingBet is much more valuable being maintained as the "going concern" that it is, rather than selling off its "assets".

There's a world of difference between the risk of being a shareholder, and the risk of being a bettor with SportingBet.

[This message was edited by Halifax on 05-06-03 at 08:04 AM.]

 

[peskypup]

Under UK law, things are very different to Chapter 11, as those folk who lost money in Netbetsports, Luvbet and others will confirm.

1. Liquidator appointed.
2. Liquidator sells assets to highest bidder, usually for knock down prices because of step 3 which is his main aim, and because this is a "fire sale".
3. Liquidator takes his substantial fees - in fact he will not have taken on the role unless there was plenty of cash for his fees.
4. Liquidator pays unsecured creditors which in this case includes punters - usually this ranges from 3 pence to 20 pence in the pound of what the creditors were owed, and takes place 36 months to 5 years after the company busted.

So in my book there is not a world of difference between being a shareholder and a creditor in a UK company which is in distress. For this reason I will continue to follow sportingbet's financial press closely.

Those people who still think they are "bomb-proof" in this book should, on the same basis, be willing to invest stacks of cash in my Amazon gold mine. Man, we are digging up ingots down there!!