“A Monopoly between Britain’s largest Adult Gaming companies” – CMA investigates the merger of Novomatic and Talarius
First published by Author on October 24, 2016 in the following categories: Mergers and tagged with cma
In early September, the CMA announced an investigation into the merger between Australian gambling operator, Tatts, and Austrian Gaming Giants, Novomatic. The merger came when Talarius U.K. (subsidiary company of Tatts) failed to reach their targeted profits and sold on their U.K. division to Novomatic on 24 June for £116 million.
The merger could be seen as ‘fishy’ as both companies are seen as big players in the British Adult Gaming industry, with Talarius machines operating in approximately 170 venues across the U.K.
Competition and Markets Authority (CMA)
The CMA is he UK’s ‘watchdog’ for overseeing mergers and acquisitions. It is necessary for the U.K. to have such a body as it prohibits organisations creating a monopoly in the market and ensure fair competition. Effectively, this is so ‘big’ organisations are not overpowering the smaller ones and adversely effecting prices for consumers.
The CMA are also equipped with overseeing mergers and acquisitions to ensure that the ‘best interests of the public’ are upheld. They are allowed to stop any mergers and acquisitions or impose conditions if they believe a merger or acquisition is not in the public interest.
The CMA will see whether the Novomatic/Talarius acquisition fell foul of the Enterprise Act 2002 . If so, this could create a situation of reducing competition in the U.K. market for betting services. So far, the CMA has served an initial enforcement order under section 72(2) of the Act, which is in relation to completed mergers.
Innocent acquisition?
Tatts’ (the Australian parent company of Talarius) CEO, Robbie Cooke, has denied any monopoly claims, and has commented on the transaction to be purely for business improvement. He said that:
“…the sale of Talarius follows three years of intense efforts to improve the performance of a business that struggled since its acquisition by Tatts back in 2008.”
In addition, he also said that “Novomatic is the logical acquirer of the business”. If you support that argument you would believe that it would ‘only have been natural’ for Novomatic to acquire Talarius, as they have an established presence in the U.K.
Suspicions
Novomatic’s recent acquisition with Talarius raised a red flag with the CMA, and some would argue a monopoly stake as Novomatic U.K. has acquired 153 gaming arcades. Combined with Novomatic U.K.’s Luxury Leisure business, the group’s estate consists of 244 Adult Gaming Centre outlets. This is supported by the fact that Novomatic U.K.’s CEO, Zane Mersich, welcomed the acquisition with open arms. He said that the acquisition is great in terms of geographical location, which adds strategy for the alleged monopoly. This acquisition now makes the Austrian company the largest gaming organisation in the U.K., according to Intergame.
The statement released by Tatts’ CEO could suggest claims of a monopoly by Novomatic. This could be because Tatts’ U.K. subsidiary could not afford to maintain the financial responsibility due to the U.K. business failing to meet its year-end profits since 2008. Maybe Novomatic offered a sum of money that Tatts could not refuse.
It is reported that the proceeds of sale would go to repay debt racked up by the company. The profits that Talarius made only equated to two per cent of Tatts’ earnings.
We may not be able to uncover whether there were genuine business reasons of the acquisition, but the CMA will do its best ‘Sherlock Holmes’ in investigating.
Conditions
The CMA are experienced in dealing with all kinds of mergers and acquisitions, including in the highly lucrative Adult Gaming Industry. Recently, they interfered in the Ladbrokes and Coral deal, whereby the CMA imposed a condition on both betting shops before the merger was allowed, which resulted in selling up to 400 outlets. This would then reduce the risk of a bookmaker’s monopoly in the market, and a similar condition could be imposed on Novomatic and Talarius, with rumours that 40 gaming centres could have been sold prior to an approved merger between the companies.