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Flutter Entertainment and The Stars Group announce massive merger

2 Oct 2019

 The combination will bring two complementary businesses together to create a global leader in sports betting and gaming.

The combination will bring two complementary businesses together to create a global leader in sports betting and gaming. (photo by The Stars Group)

(PRESS RELEASE) -- The Boards of Flutter Entertainment and The Stars Group are pleased to announce that they have reached agreement on the terms of a recommended all-share combination to be implemented through an acquisition of TSG by Flutter pursuant to a plan of arrangement under the Business Corporations Act.

The combination will bring together two complementary businesses to create a global leader in sports betting and gaming. The Combined Group will have a diverse portfolio of leading brands and complementary best-in-class products with a broad geographic reach.

Flutter and TSG would each bring to the Combined Group a proven track record in using product and brand leadership to create low-cost customer acquisition channels, while optimizing value through product cross-sell. It will benefit from an enhanced global platform and improved local market reach. On a proforma [[1]] basis, the Combined Group's annual revenue would have been £3.8bn in 2018, making it the largest online betting and gaming operator globally.

The Combined Group will be incorporated, headquartered and domiciled in Dublin, Ireland with a premium listing on the London Stock Exchange and a secondary listing on Euronext Dublin.

Key terms:

- Under the terms of the Combination, TSG Shareholders will be entitled to receive:
0.2253 New Flutter Shares in exchange for each TSG Share

- Immediately following completion of the Combination, Flutter Shareholders would own approximately 54.64 per cent. and TSG Shareholders would own approximately 45.36%. of the share capital of the Combined Group (based on the fully diluted share capital of Flutter and the fully diluted share capital of TSG excluding any out of the money options, in each case, as at the date of this Announcement)

Strategic highlights:

-The Combined Group will be well diversified from both a geographical and product offering perspective

-The Combined Group's product offering across sports betting, poker, casino, fantasy sports and free-to-play games will be best-in-class

-The Combination will accelerate delivery of Flutter's four pillar growth strategy:

- Help the Combined Group to maximise profitable growth in its core markets of the U.K., Ireland and Australia

- Provide the platform and capabilities to accelerate growth across international markets

- Attain new podium positions in Spain, Italy and Germany and provide a highly regarded customer proposition to approximately 4 million Active Customers in more than 100 international markets

- Ideally position the Combined Group to pursue the U.S. opportunity through a leading combination of brands, media reach and product offering

Financial highlights

- The Combination is anticipated to deliver substantial value creation for shareholders from pre-tax cost synergies of £140 million per annum, along with potential revenue cross-sell in international markets and lower finance costs

- The Combination is expected to be value accretive and deliver a post-tax return on invested capital that exceeds Flutter's cost of capital by the end of the third full financial year post completion

- The Combination is also expected to be at least 50% accretive to Flutter Underlying Earnings Per Share [[2]] in the first full financial year following completion

·Strong free cash flow generation is expected to result in rapid deleveraging, with Flutter's Net Debt to Underlying EBITDA target of 1.0x to 2.0x being maintained in the medium term [2]
Governance and management

- Upon completion, it is intended that the Combined Group's Board will comprise:

o A 14-person Board drawing on expertise and experience of Flutter and TSG

o Gary McGann, currently Chair of Flutter, will assume the role of Chair of the Combined Group

o Divyesh (Dave) Gadhia, currently Executive Chairman of TSG, will assume the role of Deputy Chair of the Combined Group

o Peter Jackson, currently CEO of Flutter, will assume the role of CEO of the Combined Group

o Jonathan Hill, currently CFO of Flutter, will assume the role of CFO of the Combined Group

o Rafi Ashkenazi, currently CEO of TSG, will assume the role of COO of the Combined Group

o In addition, nine non-executive directors comprising five nominated by Flutter, three nominated by TSG and the appointment of Richard Flint, former CEO of SBG

- As separately announced today, Andrew Higginson is joining the Board of Flutter as a non-executive director with immediate effect

Shareholder support
- Flutter has entered into voting support agreements with the Directors of TSG, Caledonia (Private) Investments Pty Limited and ValueAct Holdings LP under which they have each agreed, subject to certain termination rights, to vote all of the TSG Shares held by them in favour of the Combination at a meeting of TSG's shareholders, which represents in total approximately 23.79% of the existing issued common shares of TSG

- The Directors of Flutter have entered into irrevocable commitments to vote in favor of the Combination in the relevant resolutions at the Flutter shareholder meeting in respect of their own beneficial holdings totalling 20,552 Flutter Shares representing approximately 0.03% of existing issued ordinary share capital of Flutter
Strategic third party relationships

- In order to achieve economic alignment of Flutter's and TSG's strategic third party relationships across their respective US businesses, Flutter has entered into arrangements, conditional on completion of the Combination, with FOX Sports (TSG's US media partner for FOX Bet), Fastball Holdings LLC ("Fastball") and Boyd Interactive Gaming LLC ("Boyd") (together Flutter's co-shareholders in FanDuel Group):

o FOX Sports to have the right to acquire an approximate 18.5% equity interest in FanDuel Group at its market value in 2021 (structured as a 10-year option from 2021, subject to a carrying value adjustment)

o Fastball and Boyd will receive a total payment of 12.5% of the increase in FOX Bet's market value between completion of the Combination and the exercise of Flutter's option to acquire Fastball's remaining equity interest in FanDuel Group in July 2023 (also subject to a carrying value adjustment)

o Commitment by all parties to discuss options for further alignment prior to completion of the Combination

- In return, each of FOX Sports, Fastball and Boyd have waived the exclusivity provisions that form part of the existing contractual arrangements in relation to the relevant U.S. subsidiaries of TSG and Flutter

Commenting on today's announcement, Gary McGann, Chair of Flutter, said:

"This is an exciting and transformational combination that will bring together two strong, complementary businesses to create a global leader in the fast-growing online sports betting and gaming industry.

Under Peter Jackson's leadership we will bring together a management team with the experience required to ensure a successful integration of the businesses, with minimal disruption, during a time of unprecedented change in the sector.

The Combined Group will be a strong voice in the promotion of responsible gaming worldwide and will lead industry standards on the protection of customers, whilst building sustainable relationships with them."

Commenting on today's announcement, Divyesh (Dave) Gadhia, Executive Chairman of TSG said:

"The Board of TSG and I are delighted to recommend this exciting combination of TSG and Flutter, which we believe will create significant value for TSG's shareholders.

Over the past four years our team, led by Rafi, has been working relentlessly and passionately to stabilise, grow and establish TSG as one of the clear leaders in our industry. We seized new opportunities in poker, significantly grew our casino business, acquired one of the U.K.'s most notable sportsbook brands in Sky Bet, built a significant presence in Australia through BetEasy, and teamed up with FOX Sports to launch FOX Bet to position ourselves to become a leader in the U.S.

We have long had respect for Flutter, and believe the combination is a natural next step in the evolution of the business, creating a leader in online betting and gaming with trusted brands, diversified revenues, stand-out technology and the best operational and managerial talent in the industry.

With TSG appointing a significant portion of the new Board, we look forward to working together with Gary, Peter and the Flutter team to continue and contribute to the success of our combined business."

Commenting on today's announcement, Peter Jackson, CEO of Flutter said:

"The combination represents a great opportunity to deliver a step change in our presence in international markets and ensure we are ideally positioned to take advantage of the exciting opportunity in the US through a media relationship with FOX Sports as well as our development of US sports betting through Flutter's FanDuel and TSG's FOX Bet brands. We are committed to these two high quality brands to drive the growth of the Combined Group in the U.S.

The combination will turbocharge our existing four-pillar strategy and provide world-class capabilities across sports betting, gaming, daily fantasy sports and poker, as well as greater geographical and product diversification.

We believe the combination of Flutter and TSG will deliver substantial value for shareholders. We will have an exceptional portfolio of leading recreational brands and best-in-class products on industry-leading technology platforms."

Commenting on today's announcement, Rafi Ashkenazi, CEO of TSG, said,

"This exciting combination will allow us to enhance and accelerate our existing strategy. In recent years, we have transformed TSG from a single product operator in poker, to a diverse global leader with multiple product offerings across poker, gaming and sports betting. The combination with Flutter will further enhance our company's core strengths, and position us strongly for the future in this rapidly evolving industry. I'm delighted to be joining the Board of the Combined Group and to serve as its COO."

Commenting on today's announcement, Lachlan Murdoch, Executive Chairman and CEO of Fox Corporation, said,

"Our FOX Bet partnership is off to a great start, and teaming up with Flutter and FanDuel will allow us to build on that strength and jointly capture the significant market potential ahead of us. We're excited to be able to expand our partnership into FanDuel, which together with FOX Bet, will be a leader in sports wagering in the US."

Commenting on today's announcement, Richard Flint, said,

"I have a lot of admiration for what Rafi and Dave have achieved in first stabilizing, and then building one of the most successful gaming companies in the world through the acquisition of great businesses in both the U.K. and Australia.

In addition, the growth of TSG's online casino operations points to the success TSG has had in cross-selling casino product to its traditional poker customer base.

I am excited about the prospect of joining the Board of the Combined Group as a Non-Executive Director following completion of the transaction and believe that the combination of TSG and Flutter will create a compelling proposition in global sports betting and gaming."
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