Does rumoured Paddy Power bid highlight power of digital?

Does rumoured Paddy Power bid highlight power of digital?

Friday, June 5, 2015 Totally Gaming
Ladbrokes is believed to the subject of a takeover bid

The strength of online over retail gambling looks to be the key in Paddy Power’s rumoured takeover bid for Ladbrokes.

UK newspaper The Daily Mail reports that the Ireland-based Paddy Power is interested in buying its UK rival, with a figure of £1.6bn suggested.

The same deal was rumoured more than a year ago, but movement in Ladbrokes’ share price during the course of this week suggests that this may be more than just newspaper talk.

Last year, Global Betting and Gaming Consultants (GBGC) analyst Lorien Pilling, commenting in an article on mergers and acquisitions, said that there would “seem some basis” for Paddy Power taking over Ladbrokes in order to expand their presence on the UK high street.

“Paddy Power has the better online division, so it would be most interested in betting shop acquisitions,” he said.

Ladbrokes, which would not comment on the story this morning, saw group operating profit tumble 9.3 per cent year-on-year to £125.4m in 2014. Digital revenue, comprising online and mobile, was up 22.9 per cent to £215.1m, and they will hope to improve their online fortunes in the future following the appointment of digital specialist Jim Mullen as chief executive earlier this year.

The rumours about a takeover come as financial broker Peel Hunt upgraded Ladbrokes stock from ‘hold’ to ‘buy’ position, stating that Mullen’s digitally focused strategy could drive substantial shareholder value and company growth.

Mullen, the former chief operating officer of William Hill Online, is set to unveil the operator’s future strategy and plans on June 30.

Peel Hunt views Mullen’s appointment as a positive for Ladbrokes investors, further stating that it is likely that the chief executive will undertake a more aggressive strategy with a substantial increase in digital marketing.

“We hope to see tangible and bold initiatives that will deliver the long overdue corporate recovery," the analysts added.

"We believe £80m of additional marketing spend (on top of our base assumption) over the next three years could drive Digital earnings before interest, tax, depreciation and amortisation 60 per cent beyond our 2017 base case.”
 

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