ZEAL Rejects Lottoland Offer As ‘Significantly Inadequate’
ZEAL Network rejects the non-binding, conditional and indicative offer from Lottoland Holdings for the purchase of assets of the ZEAL Group representing the core of the German business as currently operating under the Tipp24 brand as significantly inadequate. The cash purchase price offered by Lottoland, subject to due diligence, ranges from EUR 60 million to EUR 76 million.
The Executive Board of ZEAL has reviewed the proposed indicative offer from Lottoland on the basis of the publicly available disclosure from Lottoland and on internal valuations made ahead of the announcement of the Lotto24 transaction.
Based on this review, the Executive Board rejects the offer as significantly inadequate. Even at the high end of the implied price range indicated by Lottoland, the offer neglects the fundamental value of the German core business of ZEAL.
The German business of Tipp24 contributes by far the largest part of ZEAL’s revenues and earnings. At the same time, its client base and brand represent the key part of the growth platform for the future German lottery brokerage business, following the planned transformation of ZEAL’s current German secondary lottery business into a locally licensed online brokerage model and the agreed combination with Lotto24.
A sale of the Tipp24 business would therefore strip ZEAL of its most valuable asset, i.e. the entire customer base in Germany and the brand, and therefore of its potential for future growth in Germany. At the same time, ZEAL and its shareholders would be left with the execution risk of the necessary break-up of the business and the associated restructuring costs for the employees which would not be part of the deal. In addition, ZEAL and its shareholders would be left with the contingent risk from pending litigation about the payment of value-added tax (VAT) in Germany, which would also limit potential cash distributions to ZEAL shareholders.
The Executive Board of ZEAL has determined that the implied value per share of the Lottoland offer, which is based on very optimistic assumptions regarding the ability to monetise the remaining ZEAL business, and which neglects the implementation and tax risks mentioned above, significantly undervalues the future prospects of ZEAL. Shareholders should in particular take into consideration the share price targets for ZEAL recently published by independent analysts. The offer therefore does not provide a reasonable basis for engagement with Lottoland. The planned and agreed combination with Lotto24 has a superior strategic rationale, offers the best opportunity for sustainable growth and creates higher value for ZEAL’s shareholders. In light of this assessment, ZEAL also reiterates that the general meeting on 18 January will not be postponed.
Dr Helmut Becker, CEO, ZEAL, commented: ‘The indicative offer from Lottoland is an attempt to buy our core German assets on the cheap. It does not reflect the value of our German business. At the same time, a sale of our core business would leave ZEAL and its shareholders with all downside risks from pending VAT litigation in Germany and with significant costs from restructuring the rest of the business.
Our plan to convert Tipp24 into a brokerage business and to combine it with Lotto24 will create a strong platform for future growth and is far superior to the Lottoland proposal. The positive preliminary results announced today by Lotto24 further emphasise the attractiveness of the brokerage business model. Lottoland’s offer therefore confirms our view that their main intention is to disrupt the Lotto24 transaction, driven by their business interests as a competitor.’