LONDON Online gambling company Betfair (BETF.L) rejected a $1.4 billion takeover approach from private equity firm CVC Capital Partners CVC.UL, saying it was too low and had too many conditions attached.
The potential offer made on Friday by CVC, the largest shareholder in Formula One motor racing, was pitched at 880 pence per share, valuing Betfair at around 912 million pounds ($1.4 billion).
Betfair stock, which was trading at 700 pence before CVC said a week ago it was considering a bid, changed hands at 839p by 05:30 a.m. EDT on Monday, a discount to CVC's terms but up 4 percent on the day, indicating investors believe there are further twists to come in the takeover tussle.
The online gambling sector is growing quickly and is seen as ripe for consolidation. Betfair, founded in 2000, operates a system that allows gamblers to bet against one another, removing the middleman or bookie.
"CVC's opening gambit, while not a knock-out bid, is not too far away from a valuation that would cause management and investors cause for serious consideration," said analyst Nick Batram at brokerage Peel Hunt.
"The risk for CVC and its partners is that they are merely a stalking horse for a potential industry buyer who could pay much more," Batram added.
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Betfair floated in 2010 at a price of 13 pounds, but its shares have tumbled since then, with analysts saying the company has failed to clearly identify itself as a technology or gambling company.
Chief Executive Breon Corcoran joined last August from bookmaker Paddy Power PAP.I and has started to cut costs and pull out of markets such as Germany and Greece, where regulation is unclear or taxation rates are regarded as too high.
Betfair plans a statement on May 7 to update investors on its trading performance and progress on implementing Corcoran's strategy. Its financial year runs until the end of April.
Betfair said its board had reviewed the proposal with its advisers and "rejected it on the basis that it fundamentally undervalues the company and its attractive prospects, and is highly conditional".
CVC believes it could turn Betfair around more quickly by running it as a private company, potentially leaving the existing management team in place. It has been involved in the gambling sector before, buying leading British bookmaker William Hill (WMH.L) in 1999 and floating it on the stock market three years later.
CVC has teamed up with partners including Richard Koch and Antony Ball to make an offer in cash or an alternative made up of shares and loan notes in a new entity.
Koch, a co-founder of international strategy consultancy LEK Consulting, holds a 6.5 percent stake in Betfair. Ball is a non-executive director at Luxembourg-listed investment group Brait and is the co-founder of its private equity business.
($1 = 0.6554 British pounds)
(Reporting by Rhys Jones and Keith Weir; Editing by Paul Sandle and David Holmes)