The acquisition of local online horse betting site YouBet.com by Churchill Downs Inc. – the operator of the Kentucky Derby – was being described by analysts last week as a good fit.
The merger, approved by YouBet’s shareholders April 6, is expected to be completed in the second quarter of this year after regulatory approval of the Louisville, Ky., horse-racing giant’s $128 million bid.
“The industry is consolidating. There’s a shift toward online wagering, and as it grows I think there will be some nice synergies in combining these two companies,” said Mark Argento, senior research analyst for Minneapolis-based Craig-Hallum Capital Group, who covers YouBet. “My guess is that the guys at YouBet didn’t want to continue to duke it out head to head with the Churchill guys.”
YouBet.com Inc., based in Burbank, operates as a licensed facilitator for online horse-race wagering. The company’s site allows patrons to place bets on races at about 180 racetracks in the United States, Canada, the United Kingdom, Australia and South Africa from their home computers.
“It’s an alternative channel for placing wagers,” said Argento, noting that track attendance is decreasing while online betting is rising. “Instead of walking down the street, you can just log in.”
In addition to its flagship Churchill Downs Race Track, Churchill Downs owns single tracks in Illinois, Florida and Louisiana. It also operates several poker clubs, off-track betting facilities and Miami’s Calder Casino.
The company reported a fourth quarter loss of $6.9 million, compared with a $4.1 million loss the year before. Company executives attributed the poor results to a decrease in betting at its tracks and startup costs of the casino, which opened in January.
Churchill Downs hopes that it can build business through the acquisition of YouBet, which, though posting relatively flat revenues, is gaining popularity with bettors. In 2009, the company reported, the number of patrons on its site increased by 15 percent, helping the company turn a $11.6 million profit on $111 million in revenue. In 2008, the company lost $4.5 million on $109 million in revenue.
YouBet’s stock closed at $3.07 per share April 8, below a 52-week high of $3.73 hit in July but about triple a low barely above a dollar early last year.
Churchill is paying .0598 of a share of its common stock on the day of closing plus 97 cents in cash for each share of YouBet. That would come out to about $3.25 per share as of last week. That’s above YouBet’s closing price of $2.22 the day before the merger announcement. The Nov. 11 merger agreement was approved by more than 98 percent of YouBet’s voting shareholders.
Churchill Downs, in a statement, said the California company will be merged with TwinSpires.com, a similar service owned and operated out of Kentucky. Both Churchill Downs and YouBet declined to comment on the merger.
“Together these businesses will be more profitable with less infrastructure costs and more efficient marketing,” said Michael Crawford, senior analyst at B. Riley & Co. in Los Angeles.
