SBC News Voice of the Sports Betting Industry
The potential merger UK legacy gambling operators Ladbrokes and Gala Coral has sent the industry into speculative overdrive as commentators and industry analyst try to gauge the effect of the heavyweight merger on the industry’s landscape.
Both Ladbrokes and Coral’s governance have admitted that the merger talks are real and in action, Ladbrokes issued a statement to the FTSE market, while Gala Coral CEO Carl Leaver addressed staff at Stratford and Gibraltar on the “exciting development”.
The combined resources of the companies would form the UK biggest betting operator with a reported 4000 retail betting shops, leapfrogging current market leader William Hill’s 2400. The merger would be treated as a takeover of Ladbrokes by Coral who are owned by group of private equity firms.
As the betting industry reaches past the halfway mark of 2015, the Ladbrokes/Coral merger has surprised media and sector analysts as Ladbrokes are currently restructuring their executive management team under new CEO Jim Mullen.
Furthermore in March Gala Coral governance had stated that the operator was preparing for a post UK General Election IPO following the sale of a large portion of its UK bingo halls and the announcement of a record breaking 2014 with the company recording EBITDA earnings of £260 million.
Edison Investment Research’s analyst Eric Opara commented on yesterday’s shock news
“The proposed merger is about driving Ladbrokes digital offering where it significantly lags William Hill. The recently introduced point of consumption tax increases the rewards for scale in online betting so this deal makes a lot of sense.
“Investors would do well to remember that Ladbrokes have attempted this merger before in 1998 when Peter Mandelson stepped in to veto the move on competition grounds. The huge growth in the significance of the online space has certainly reshaped the competitive landscape since then, but any proposed merger may still come with conditions with respect to the company’s high street shops.”
Ladbrokes/Coral has placed the UK gambling sector at the centre of UK business commentary and analysis. Professor Nigel Driffield of Warwick Business School, a specialist in researching corporate mergers noted that the merger gains for Ladbrokes were clear.
“What is clear is that the motivation from Ladbrokes’s perspective is access to Gala Coral’s online presence. Ladbrokes has tried to develop that platform, but it does not appear to have been particularly successful, due to its lack of appeal with its core customers – ie people who bet on sport.
Driffield states that a point of interest in the merger will be the operators’ combined approach to its potentially vast retail operations.
“What is interesting is the number of betting shops that this merged entity would have at a time when Ladbrokes has closed a number of its own shops, and so I would expect to see further rationalisation of shops after the merger. Typically, however, Coral’s shops tend to be in slightly wealthier areas than the other major chains, with Ladbrokes more evenly spread. Equally, Ladbrokes appear to have said that it has no interest in Gala Retail, the high street bingo operation.
“This merger was proposed some 17 years ago. For it to have re-surfaced, even without the Bingo business, makes one assume they may have already been given the nod by the competition authorities. The online market has made the sector much more competitive than it was, so one assumes that the main motivation for this is a desire to reduce operating costs both online and in the high street through rationalisation.
“Reverse takeovers usually refer to the shares of the purchased company being put into a holding company, which is then 100 per cent owned by the acquiring company. In this case, whether both brands will survive is less than clear, but it is clearly felt that the Gala Bingo brand is strong, and is not to be included in this.”
Coral governance has stated that a planned merger with Ladbrokes would likely take up to 12 months to complete.
To date the sector has seen its fair share of failed corporate mergers most notably the creation of bwin.party in 2011. Through its merger bwin.party had achieved a valuation of £4.8 billion, however having failed to create corporate synergies and having further recorded steep declines in product performance bwin.party has seen its corporate value drop to £800 (March 2015). Ladbrokes and Gala Coral governance and investors will be hoping for a different outcome should their merger become a reality.
