Online betting service Youbet.com Inc. said late Wednesday that it has agreed to be acquired by Churchill Downs Inc. in a stock-and-cash deal valued at nearly $127 million.
Shareholders of Youbet.com, based in Burbank, would receive 0.0598 shares of Churchill Downs’ common stock and 97 cents in cash for each share of Youbet common stock. Churchill Downs is based in Louisville, Ky.
Youbet stock closed at $2.41 on the Nasdaq prior to the announcement, and gained nearly 9 percent in after-hours trading. Churchill Downs closed at $31.57, and was unchanged in the after market.
After the close of the transaction, Youbet.com shareholders are expected to own around 16 percent of Churchill Downs, which owns and operates the famed namesake Louisville racetrack, and three other tracks in Florida, Illinois and Louisiana. It also owns off-track betting facilities and has interests in advance-deposit wagering, television production, telecommunications and racing services companies. It has a 50 percent interest in HorseRacing TV, a cable and satellite network.
“We believe this (merger) should enable us to … attract new customers to racing,” said Churchill Downs CEO Robert L. Evans in a statement.
In a separate announcement the company reported third quarter net income of $878,000 (2 cents per share), compared with $2.7 million (6 cents) a year ago. Revenue fell 5 percent $27.9 million.
Excluding one-time charges, the earnings per share were 3 cents. Analysts surveyed by Thomson Reuters on average expected the company to report adjusted per-share earnings of 3 cents on revenue of $28.1 million.
Youbet, which has a roughly 30 percent market share in the online horse betting industry, has reported annual losses for three of the last four years on the costs of acquiring two gaming-related companies, and defending itself in a federal investigation of one of those acquisitions, International Racing Group. Youbet shut down IRG in February 2008.
But the company has seen recent improvement.
“We have worked hard to develop and deploy innovative products and services and have introduced creative online marketing tools to attract new customers to racing,” said Youbet CEO David Goldberg in a statement. “Youbet’s customers will be able to continue to access their accounts and make wagers, deposits and withdrawals as they do today.”
Roughly $10 million in annualized cost savings are expected from combining the two companies. Upon completion of the transaction, Michael Brodsky, Youbet’s executive chairman, will join the board of Churchill Downs.
