Youbet.com, Inc., announced Monday that it completed its previously announced acquisition of privately-held United Tote Company for approximately $31.9 million, plus the assumption of approximately $14.7 million of United Tote secured debt (primarily related to the financing of equipment that is leased to United Tote's track customers). The adjusted purchase price is $2 million less than the previously announced purchase price. The acquisition of United Tote is expected to be accretive to Youbet's fiscal 2006 operating results.Youbet financed the acquisition by delivering to UT Group, LLC, United Tote's former owner, the following consideration:
--$1.0 million from the purchase escrow account previously funded by Youbet;
--Approximately $8.7 million from its cash reserves;
--$5.2 million one-year, unsecured promissory note;
--$3.2 million two-year, unsecured promissory note;
--$1.8 million two-year, unsecured promissory note; and
--2,181,818 shares of Youbet.com common stock, valued at $5.50 per share. Each promissory note bears interest at a fixed rate of 5.02% per annum, and the principal amounts are due in full at their respective maturity dates (subject to partial or full prepayment under certain circumstances).The Youbet shares issued to UT Group are subject to a 90-day lock up period, and Youbet has agreed to register such shares with the U.S. Securities and Exchange Commission. Youbet also has agreed to a "make-whole" provision pursuant to which Youbet will pay to UT Group a one-time cash payment equal to the amount by which $5.50 exceeds the average trading price of Youbet's common stock for the five trading-day period ending on Feb. 9, 2007, multiplied by the number of shares delivered by Youbet and then held by UT Group.In addition, Youbet may cause UT Group to sell some or all of the Youbet shares on or before February 9, 2007, if the trading price is below $5.50 per share, provided that Youbet pays to UT Group the "make-whole" amount within ten trading days of the sale. Further, the make-whole provisions terminate if the trading price of Youbet's common stock meets or exceeds $6.15 for any three consecutive trading days during which the resale shelf registration statement is effective and available for use, or if UT Group sells more than 352,700 shares of Youbet stock in any five consecutive trading-day period.As part of the transaction, Youbet guaranteed United Tote's existing secured debt, and anticipates that it will be able to refinance this debt on more favorable terms with the current lender or another commercial bank.
"We are excited about closing a strategically important acquisition that benefits our shareholders by creating a combined entity with strong growth prospects," said Charles F. Champion, chairman, president and CEO. We expect that the adjusted purchase price and financing terms will help us achieve both near- and long-term earnings accretion. Our acquisition of United Tote furthers our efforts to be the pari-mutuel industry's leading end-to-end technology provider. The acquisition also brings to Youbet several exciting new products, including innovative racing and sports contest offerings. We plan to introduce some of these new products to our current and new customers later this year and, in doing so, we believe that this proprietary game content can quickly achieve a critical mass of players that will lead to prize payouts that can be 'life-altering'. "United Tote's role as a leader in the tote industry, range of new product offerings, and strong customer relationships in numerous international markets are expected to be important elements in our goal to achieve broader geographic and product revenue diversification," Champion continued. "In addition, our enthusiasm for acquiring United Tote is driven by significant cross-selling opportunities and the anticipated benefits of already identified cost reductions and cost synergies between the two companies. We expect United Tote to generate significantly higher revenue and EBITDA in 2006 reflecting the benefit of its successes in 2005 and early 2006 in expanding its market share."Founded in 1959, United Tote is a supplier of totalizator systems, terminals and other pari-mutuel wagering services that process more than $7 billion in handle annually on a global basis, approximately 90% of which is North American pari-mutuel handle. United Tote supplies pari-mutuel tote services to approximately 94 racing facilities in North America, including Churchill Downs and New York Racing Association tracks, and 11 facilities in Korea, Mexico, Spain and other foreign markets. Youbet.com is a diversified provider of technology and pari-mutuel horse racing content for consumers through Internet and telephone platforms and is a leading supplier of totalizator systems, terminals and other pari-mutuel wagering services and systems to the pari-mutuel industry through its United Tote subsidiary. Youbet.com's International Racing Group subsidiary is the only offshore pari-mutuel wagering company to be licensed by a U.S. racing regulatory jurisdiction.