If you like trading the news and are buying shares after reading a newspaper report on gambling industry consolidation, you are most likely paying a premium to the early birds who are taking the profits on a move that they themselves are likely to have masterminded.
For several weeks now, in anticipation of the outcome of the UK Government review of fixed-odd betting terminals (FOBTs), a number of newspapers have been writing that the gambling industry is on the verge of a takeover boom.
Restrictions imposed on max FOBT bets are expected to lead to a drop in revenues for companies that operate betting shops. The higher the drop in revenues, the more likely the company affected will be involved in a merger with another gambling operator as part of a process to secure a dominant positions on the UK market.
Financial Times, for example, reported on October 9 to have spoken with a number of senior gambling industry executives that on condition of anonymity revealed a flurry of deals is expected following the review, starting from GVC Holdings taking over Ladbrokes Coral.
If the Ladbrokes Coral deal fails, the Bwin and Sportingbet parent company did not rule out approaching William Hill, which has also held preliminary talks with PokerStars holding company Amaya (now The Stars Group) and has not completely abandoned the idea of a tie up with 888.
In the days following the article, the price of Ladbrokes Coral increased, with the shares reaching on October 12 130p, up 12% from the end of August to the top price in recent months.
GVC Holdings share price went up over 50p from 859p the day of the article to 912.5p on Oct 13.
Similar fate for William Hill shares, which reached 258p on Oct 12, up 7.5% from August prices.
In the grand scheme of things, none of these are major movements, but when you look at the number of shares exchanged in the days following the article, there is no doubt that buyers were reacting to the news of possible upcoming takeover activity.
GVC Holdings, for example, never went over the 1 million shares traded in the week before the FT article, while 1.9 million, 4.5 million and 7 million shares were exchanged respectively on October 10, 11 and 12.
The same had happened on September 14, when the Financial Times titled “Online betting group GVC keen on return to dealmaking trail” and the price of GVC shares went up that day from 799.5p to 851.5p on over 6 million shares exchanged.
When on October 16, Bloomberg published “Bookmaker Futures on the Line as Billion-Pound Review Looms”, stating that a period of consolidation in the gambling industry has been on put on hold while bookmakers await the results of the review, 8.5 million William Hill shares traded on the day, up from an average of 2 million the previous days.
Investors were betting than one of the gambling companies that lost the most value in recent years was ready to rebound in the wake of talks of M&A activity.
Reports of takeovers are not exactly rare news in the gambling industry as it only takes a superficial look at past news to conclude that in gambling, everyone is talking to everyone else at all times.
Another constant is that those that talk to the newspapers are always unidentified people or sources, with no way for anyone to say in case they are profiting from their anonymous revelations.
Whether these sources buy the rumour and sell on the news is actually not important here. However, investors that trade the news, buying shares after reading a newspaper report on industry consolidation, are most likely paying a premium to the early birds who are taking the profits on a move that they themselves are likely to have masterminded.
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