Centrebet

A takeover arbitrage idea for those able to conduct their own further research was presented in Ideas Lab punts on Centrebet, 13 May 11 (No view – $1.78). With the stock up 18% over the past 2½ months, the arbitrage is shaping up very nicely. One part of the Ideas Lab thesis was straightforward arbitrage—the stock was trading for less than the $2.00 being offered by UK bookmaker Sportingbet Plc. The other part of the thesis was the possibility of a windfall against the tax office. Centrebet, and other online bookies, have claimed they overpaid GST between 2005 and 2009. If the company wins its case, most of any windfall is structured to flow to today’s shareholders rather than Sportingbet.

So it was most interesting to note that competitor IAS/Sportsbet achieved victory in Federal Court this week, on a broadly similar issue. Centrebet released an announcement saying the decision provides a ‘reasonable basis’ for the court to find in Centrebet’s favour also. The prospect of current shareholders receiving some value from the GST claim has just gone up. The market’s response has been fairly muted, and we think incorrectly so. While the very important questions of ‘How much?’ and ‘When?’ are still up in the air, we suspect the ultimate proceeds of the likely tax win should be well in excess of the 10-cent difference between the current share price and the $2.00 bid price. Those who might consider buying into Centrebet today based on the potential for a large tax win need to do their own research. Those who already own it will probably be well placed to continue holding for now, although this is not an official recommendation. NO VIEW.