Hedge funds gamble on FTSE 100 firm behind Paddy Power and Betfair merging with Canada-based Stars Group
Investors are betting that the FTSE 100 gambling giant behind Paddy Power and Betfair will succeed in merging with Stars Group – the Canadian owner of Sky Bet – in a £10billion deal.
Hedge funds have placed bets of £250million in recent days against Flutter Entertainment in an effort to cash in on its all-share deal.
Short positions in Flutter – which has a market value of £5.9billion – have surged to an all-time high and now represent nearly 5 per cent of the company’s shares, according to the Financial Conduct Authority. This is up from just 0.59 per cent three weeks ago.
Bet on success: Investors are betting that the FTSE 100 gambling giant behind Paddy Power and Betfair will succeed in merging with Stars Group
Short-selling experts told The Mail on Sunday their bets were what is known as ‘merger arbitrage’, where hedge funds look to profit from mergers through complex trading tactics.
As Flutter investors will own 55 per cent of the enlarged group, it is technically the buyer in the transaction. In an all-share merger, hedge funds typically buy shares of the company being taken over while shorting shares of the acquiring company – in this case Flutter – if they think the deal will go through.
Analysts have speculated about whether GVC, the deal-hungry owner of Ladbrokes and Coral, could launch a counter-bid.
They have also suggested Flutter could face demands from competition authorities to offload other parts of its business to get the Stars deal over the line.
However, the short-selling spree suggests investors are predicting that the deal will go through.