The shares of Cirsa have experienced a strong rebound on the Stock Exchange of more than 25% since the company announced its merger with the Italian group Lottomatica, an operation that will lead to a giant in gaming and sports betting with a combined business volume of 34 billion euros.
In detail, the shares of the Catalan company advanced this Thursday by 6.93%, which, added to the increase of 18.48% recorded in the session on Wednesday, translates into a cumulative rise of 26.7% in just two days. Thus, the price has gone from 13.64 euros per share to 17.28 euros in just two days.
The reaction on the market has been very different for the Italian group. Investors penalized Lottomatica on Wednesday, which is listed on the Milan Stock Exchange, with a decline of 7.63% after the operation was announced.
However, this Thursday the shares of Lottomatica have rebounded by nearly 6%, which has allowed to reduce the negative impact of the merger to -2.2%. Thus, the company's shares are trying to recover the levels prior to the announcement, closing the session at 24.22 euros, compared to the 24.77 euros with which the session ended on Tuesday.
"The operation has a solid industrial logic and creates a global leader in the sector with undisputed leadership positions in Italy and Spain, an attractive growth and cash generation profile, and a very high capacity for shareholder return," the analysts from Renta 4 have stated.
The integration will result in the second largest publicly traded operator of gaming and sports betting worldwide, with an estimated adjusted earnings before interest, taxes, depreciation, and amortization (adjusted Ebitda) of about 2 billion euros.
Both companies, leaders in their respective home markets, Italy and Spain, have a diversified portfolio of markets with great appeal and strong growth, and expect cash synergies before taxes of approximately 115 million euros annually, the full realization of which is expected for the third full year after the closing of the operation.
In addition, forecasts indicate that, in the three years following the merger, the distribution of dividends to shareholders could reach up to 4 billion euros.
Negative premium of 6% compared to the market
Regarding the final design of the merger, the resulting company will maintain the current name of Lottomatica, as well as its registered office, headquarters, and tax domicile in Rome (Italy), while Cirsa will have a second headquarters in Barcelona.
The American fund Blackstone, controlling shareholder of Cirsa, has signed the merger agreement assuming several commitments, including voting in favor of the operation at the general meeting of the Catalan company called to approve it. Likewise, key members of Cirsa's management team who own shares in the company have signed agreements with Lottomatica to support the integration.
Following the approval by the general meeting of shareholders of Lottomatica, Blackstone will have representation on the board of directors of the new company through two directors.
As a result of the exchange, Cirsa shareholders will receive 0.668 new shares of newly issued Lottomatica for each share of Cirsa they hold.
Taking as a reference the current quotation of 24.22 euros per share of Lottomatica, the exchange assigns a value of 16.17 euros to each share of Cirsa, below the 17.28 euros at which Cirsa has closed, implying an implicit discount of 6.36% compared to its market price.
However, at the time the operation was announced, the exchange valued each share of Cirsa at 16.55 euros, based on the 24.77 euros at which Lottomatica closed on Tuesday, compared to the 13.64 euros of Cirsa, which then represented a premium of 21.3% over the quotation of the Spanish company.
The shares representing 100% of the current capital of Cirsa will approximately equate to 32.5% of the share capital of Lottomatica once the merger is completed. Blackstone is expected to become the main shareholder of the new entity, with around 24% of the capital.
On the other hand, Lottomatica shares will continue to be traded on Euronext Milan, on the Italian Stock Exchange, and it is expected that they will also begin to be traded on the Spanish Stock Exchanges after the merger, which is estimated to close in the second quarter of next year.
The board of directors of the combined company will consist of 13 members: the 11 current directors of Lottomatica and two new members appointed at the proposal of Blackstone.
Guglielmo Angelozzi will assume the position of president and chief executive officer of the new company and Laurence Van Lancker will be the chief financial officer and deputy chief executive officer. In turn, Antonio Hostench will serve as chief executive officer of Cirsa and Antonio Grau as its chief financial officer.