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Monday, May 17, 2010

Churchill Downs - Youbet.com Deal Gets Closer to Finish?

Readers know that we've been tracking the proposed acquisition of Youbet.com (UBET) by Churchill Downs (CHDN). We previously posited that certain catalysts might close to bring the share price of Youbet.com closer to that of the implied cash/stock offer -- recall, from our post last November:
In the middle of last week, Churchill Downs and Youbet.com announced the following:
  • "the outside date for termination of their merger agreement providing for the acquisition of Youbet by CDI has been automatically extended, in accordance with the terms of the merger agreement, from May 11, 2010 to February 11, 2011, in order to grant the parties additional time to satisfy the mutual condition to closing, relating to the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”)."
However, as with recent earnings reports of Churchill and Youbet, the companies again stated that a June quarter 2010 close was expected:
  • "Although no assurances can be given as to the timing for the closing of the merger, both companies continue to expect the merger to close in the second quarter of 2010."
We believe the extended deadline could simply be a formality while also providing ample time and reducing incremental paperwork (e.g. requesting another extension) on the chance that the transaction falls into the second half of the year.

Then, on Friday, we had more news from Churchill:
  • "Churchill Downs Incorporated and MI Developments Inc. today announced that the joint venture TrackNet Media Group (“TrackNet Media”), originally formed between CDI and Magna Entertainment Corp. (“MEC”), will be dissolved. CDI and MID’s wholly owned subsidiary MI Developments Investments Inc. will remain partners in HorseRacing TV™ (HRTV)."
We don't know for sure, but we surmise this move might have been a DoJ requirement to get the Youbet.com deal through. That is, controlling a large amount of industry racing content through TrackNet that feeds into Churchill's various distribution channels -- with the inclusion of the Youbet.com business -- might have been perceived as anti-competitive and potentially harmful to customers. Hence, the DoJ might have strongly recommended the latest move.

Now, we may just be one step closer to DoJ approval and subsequent fruition. Let's see.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long UBET.
© 2010 Jeffrey Walkenhorst
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