Ladbrokes investor Dermot Desmond has come out fighting against the merger between UK bookmakers Ladbrokes and Gala Coral, imploring the ‘passive’ Ladbrokes shareholders to block the deal and look for better options.
Desmond, who has had a long standing interest in the gambling industry through initiatives such as betting exchange BETDAQ, Irish bookmaker Chronicle and GBE Technologies, notwithstanding a stake in Ladbrokes itself, believes that the merger only benefits Coral and Playtech, with Ladbrokes shareholders picking up the bill.
In a letter to investors, backed up with a slideshow on a website called saynotocoral.com, Desmond has told shareholders that they ‘should instruct the Board to properly evaluate all strategic options open to it before committing to what I believe is the wrong deal’.
He continued: “Ladbrokes has a great brand but, unlike Coral, has failed to migrate its customers online. Ladbrokes needs a new management team to achieve this. However giving away half your company and taking on over £800m of debt is a very expensive way to recruit a quality management team.”
Desmond argues that the real winners in this transaction are the Coral shareholders, calling the deal a’ zero premium acquisition of Ladbrokes by Coral’. He explained: “The Coral shareholders receive access to liquidity for their shares and significant relief from a £2.2bn debt burden. In contrast the Ladbrokes shareholders have suffered a 66% reduction in their dividends and will be saddled with gearing multiples fifty percent higher than the current level.”
He said that the deal would also cement Playtech’s position as key technology supplier to both Coral and Ladbrokes, in addition to receiving a £75million settlement of an incentive payment, despite the ‘failure’ to reinvigorate Ladbrokes’ online fortunes.
He also criticised the failure to quantify the synergies between the two operations or even cost a potential competition review. Desmond suggests that a review will drag on and force the company to dispose of a vast number of shops at way below the premium agreed in the deal.
Desmond added: “The lost profits from any such disposed shops may outweigh the unspecified synergies which the proposed transaction is hoped to yield. In respect of synergies, the commitment to maintain both the Coral and Ladbrokes brands and two trading teams would suggest that material synergies will be difficult to deliver.”
He concluded: “Despite its troubles, I believe Ladbrokes has the potential to be a great company once again and to become a major force globally in online gaming – a sector that is growing fast and where well managed companies are thriving.
“The shareholders in Ladbrokes have passively accepted all the bad news and the loss of value heaped upon them by the Ladbrokes Board and management over the last 10 years. It may be tempting to just wave through the Coral merger – surely it can’t be any worse?
“This is not a good deal for Ladbrokes shareholders. Shareholders should vote against it and insist that an independent committee of the Board, with appropriate advice from an independent investment bank, review all the strategic options open to Ladbrokes in a very active M&A market.”
A Ladbrokes spokesman told the Evening Standard: “We have had significant dealings with Mr Desmond as both a shareholder and a commercial partner over recent times.
“We note his views and are not surprised by them as he has been in extensive dialogue with the management team and not been afraid to talk of undertaking such action.”