Mergers within the world of online gambling are hardly uncommon, but not every merger gets off without a hitch, with many actually coming loaded with complications. While a position in the FTSE100 was a the result for Paddy Power following its merger with Betfair, Credit Suisse have stated the share price performance of the now much larger Paddy Power has been overstated.
Job Cuts
Two months after what many considered to be a monumental deal, Paddy Power and Betfair have been forced to cut over 650 jobs, following what is deemed to be a complicated start to 2016. In the eyes of analysts cost cutting is something that should never come as a result of such a globally promoted business arrangement, with it throwing it up a warning sign to investors.
Speaking on the matter well-known market analyst Ed Birkin said, “We feel that cost synergies alone are a poor rationale for M&A in a growth industry such as online gaming. Furthermore, we believe that scale is not as important as many believe, and is no indication of potential market share gains. With regards to Paddy Power and Betfair, as both companies already had strong brands, high quality management teams and good product/technology offerings, we question the extent of the benefits from a merger”.
Stock Market Performance
It is negative comments such as this that have hampered the company’s stock market performance, knocking 250p of its share price, driving it down to £90.80. However, Birkin did say that there were positives to be found within the merger, including the potential for earnings growth, “The consensus view on Paddy Power Betfair is that its scale will allow it to make significant market share gains and achieve strong operational gearing”.