BlueBet (ASX:BBT): Is it about to merge with BetR and is this its only hope?

Ujjwal Maheshwari Ujjwal Maheshwari, January 10, 2024

BlueBet (ASX: BBT) shares have recently witnessed a significant surge, capturing the attention of the market. This upward movement in BlueBet’s stock price is not just a random fluctuation but is due to rumours it’ll merge with one of its several industry rivals, BetR. This development is fuelling speculation and anticipation about what this could mean for the future landscape of both companies in this competitive sector.

 

What’s Behind BlueBet’s Sudden Rise?

The recent 27% escalation in BlueBet’s share value to 26 cents is a clear market reaction to more than just speculation; it’s a direct response to the burgeoning rumours of a merger with its competitor, BetR.

This potential union, primarily strategized to bolster operational scale in the face of intensifying regulatory challenges, has swiftly stirred up the market, igniting a flurry of investor activity. The merger discussions, spearheaded by Matthew Tripp of BetR and welcomed by Michael Sullivan of BlueBet, hint at a possible synergy poised to potentially transform the Australian betting industry.

However, the eventual structure of this merger, a decision that could result in BlueBet going private or incorporating BetR onto the ASX boards, remains shrouded in uncertainty.

 

BlueBet’s Sinking Ship

Grasping the full implications of this potential merger necessitates a deeper look into BlueBet’s market trajectory. Since its debut on the public market in 2021, where it was initially valued at $1.14 per share, BlueBet has been in terminal decline ever since. But don’t take our word for it, just look at the chart.

 

BlueBet (ASX:BBT) share price chart (Graph: TradingView)

 

The company’s market capitalization, which has sharply declined from over $220m to $47m, paints a picture of significant challenges faced. Namely, substantial competition in the online betting space, the challenge of being a not profitable stock amidst the highest inflation in 40 years and the sharpest pace of interest rate rises in the same time period.

The recent upswing in share price is barely a blip amidst all this context. Nonetheless, it could well mark a pivotal turning point dependant on what happens from here. It is anyone’s guess, although let’s look at what the company has said publicly – having done so last week.

 

Source: Company

 

In other words, this isn’t fake news, talks are occuring. However, investors shouldn’t expect a deal at this stage. It may well happen, but even if it does, it remains to be seen if the company will stay on the ASX or exit. Alternatively, the talks may come to nothing, and shares may plunge as a consequence.

 

BetR’s Promising Start

BetR is a privately owned company that entered the scene in 2022,and it has confronted its unique set of obstacles. Initially, it enjoyed the backing of prominent investors, including News Corp Australia and Tekkorp, which lent it a promising start. However, the turbulent waters of the sports betting sector soon took their toll, leading to the exit of these significant backers.

On top of all this, the Australian sports betting market is facing increased regulatory scrutiny. The potential advertising ban and heightened point-of-consumption taxes are just the tip of the iceberg. These regulatory changes are poised to impact the popularity and revenue streams of online bookies, making scale and operational efficiency more difficult than ever. Despite these challenges, BetR’s distinguishing features lie in its larger revenue base and operational scale, factors that make a compelling case for the proposed merger. This potential alignment can help the combined entity’s market presence and revenue outlook, potentially charting a more prosperous path forward.

 

Would Joining hands be a good thing?

The potential merger of BlueBet and BetR holds immense promise for the Australian sports betting market. By combining their resources and market presence, these two entities could well achieve something greater than the sum of their parts. This is particularly crucial in an industry known for its fierce competition and ever-evolving regulations. At the same time, a combined company still wouldn’t be the biggest company in the market.

From a financial perspective, the merger presents a fascinating scenario. BlueBet’s market share of about 2%, combined with BetR’s estimated revenue close to $2 billion, sketches a picture of a potentially formidable market player.

The merger, if successful, could lead to significant value creation for shareholders, evidenced by the immediate positive response in BlueBet’s share price. However, the decision on whether BlueBet will delist or BetR will join the ASX as part of the merger remains a critical consideration.

 

Is BlueBet a Wise Investment Choice?

No. The risk of talks breaking up and shares plunging is way too great a risk. Even if the talks come to something, there’s no guarantee that investors will get a cash return, let alone one with a typical control premium you would see in a takeover deal.

 

 

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