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Churchill Downs to buy

The $127-million cash-and-stock deal for the Burbank firm will give owner of the Kentucky Derby's home about half the online horse-betting market.

November 12, 2009|Nathan Olivarez-Giles

Churchill Downs Inc. has agreed to buy Inc. of Burbank in a deal valued at about $127 million. The deal will give Churchill Downs about half the $1.4-billion online horse-betting market. The company, which owns the track where the Kentucky Derby is held, already owns another major site,

Bob Evans, president and chief executive of Louisville, Ky.-based Churchill Downs, said he expected the amount of online betting on horse races to increase over time. Last year, about 10% of the $14 billion bet on horse racing in the U.S. was online.

The cash-and-stock deal will pay Youbet shareholders 97 cents a share in cash for each share, plus 0.0598 shares of Churchill Downs stock. Based on Churchill's closing stock price of $31.57 on Wednesday, that works out to a value of about $2.86 a share, or a premium of 19%.

Youbet shares rose 8.6%, or 19 cents, to $2.41 a share. The deal was announced after markets closed.

Once the deal closes, Youbet shareholders will own 16% of Churchill stock, Evans said.

As of now, Churchill plans to leave Youbet running as an independent company and has no plans to move the company to Louisville, Evans said.

Youbet has about 30% of the total online market for betting on horse races, according to the Oregon Racing Commission. TwinSpires has about 21%. The newly merged company's biggest competitor will be TVG, which also has about 30% of the market.

The purchase doesn't come without some baggage.

Youbet owns United Tote, which manages the equipment used by racetracks to place bets and calculate odds. United Tote lost $11.2 million last year and was in the red by $18 million in 2007, Youbet's regulatory filings said.

Youbet has lost money for each of the last three years, ending 2008 down $4.5 million.

The company, however, has posted profit in each of this year's quarters. For the third quarter it reported net income of $878,000 compared with $2.68 million in the same period last year. Revenue declined 4.8% to $27.9 million from $29.3 million a year earlier.

Churchill Downs owns nine racetracks -- in Florida, Illinois and Kentucky -- and 19 off-track betting sites, Evans said.


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