UK CMA Says Stars and Sky to Remain Separate
The Stars Group acquisition of Sky Betting & Gaming was a relatively fast process. From the announcement of its intention to buy the company in a $4.7 billion deal to the finalization of the transaction, it took less than three months.
When something happens so smoothly and quickly, it may seem too good to be true. While that’s not exactly the case with this acquisition, there was a governmental body in the UK that stopped the celebration to put The Stars Group in check. The Competition and Markets Authority (CMA) issued an order to stop The Stars Group and Sky Betting & Gaming from integrating further.
And there may be more orders forthcoming.
Almost a Done Deal
When it was first announced in April, The Stars Group was moving full-speed ahead to acquire Sky Betting & Gaming. The goal was to create the world’s largest publicly-listed online gaming company, with The Stars Group better able to expand its sports betting brand. It would also provide a path into the online bingo world and better grow its internet casino games.
The process then began to acquire the shares and other funds for the $4.7 billion deal. Hundreds of millions of dollars in common shares went up for a public offering, and the financial part of the process happened rather quickly. On July 10, the acquisition was done.
It was widely assumed that the deal was done with no objections having been voiced to that point.
But the CMA simply hadn’t spoken yet.
Game, set and match!
Thinking of teaming up with another business this summer? Ask your lawyer these 10 questions to ensure you’re not breaking competition law #Wimbledon https://t.co/77wpijXsiz pic.twitter.com/25aHSduoeY
— Competition & Markets Authority (@CMAgovUK) July 13, 2018
Stop in the Name of Competition
The CMA is a department of the UK government that serves as a regulatory body for the business world. It is responsible for ensuring businesses engage in fair competition and preventing anti-competitive activities like companies merging to create monopolies.
Only days after The Stars Group and Sky Betting & Gaming deal was reported as complete, the CMA revealed an Initial Enforcement Order under Section 72.2 of the Enterprise Act of 2002. In fact, the order was written on July 6, before The Stars Group’s announcement, but was set to commence on July 10.
The order instructed The Stars Group and Cyan Blue Topco (Sky) to comply with the following:
–Take no actions leading to the integration of the two businesses,
–Not transfer ownership or control of either company or their subsidiaries,
–Not impair the ability of Sky to compete independently of Stars in any market,
–Maintain separate sales and brand identity,
–Make no substantive changes to the organizational or management structures,
–Preserve all assets of each company separately,
–Make no changes to software or hardware platforms,
–Maintain separate customer and supplier lists,
–Make no changes to staffing, including transfers, and encourage all staff to remain in place,
–Share no business secrets, intellectual property, or proprietary information between the companies.
Next Steps
Essentially, The Stars Group may not do anything with regard to the acquisition and its takeover of Sky Betting & Gaming until further notice from the CMA.
The Stars Group has been told to hit the pause button on its $4.7bn acquisition of Sky Betting and Gaming by the UK’s competition watchdog: https://t.co/nseuZuvyQX pic.twitter.com/GMrMIh99kS
— iGB (@iGamingBusiness) July 13, 2018
According to the CMA, an initial enforcement order is simply a way to stop all action regarding a merger until a more intensive investigation can be completed. If there is no significant concern about fair competition, the order will be revoked. Meanwhile, however, the first phase of the investigation has begun and will conclude with a provisional view, though either party may be required to provide evidence or information throughout the process.
The issuance of an initial enforcement order is not uncommon, but it does indicate that there was some point(s) of concern for the CMA. Both companies must simply comply with the order and provide any requested information.
Is Online Poker the Problem?
It is hard to look at the merger without considering the online poker aspect of the two businesses. The Stars Group maintains PokerStars, by far the largest online poker site in the world. Combining the two businesses would squash Sky Poker through its integration on to the PokerStars platform. It is unclear if that is or was the intention of The Stars Group, but any move in that direction would virtually eliminate Sky Poker from internet poker competition.
There could very well be other concerns, which will likely come to light as the investigation continues. The Stars Group has yet to release a statement about the CMA’s initial enforcement order.
