Is Ladbrokes and Gala Coral merger a good move?

Is Ladbrokes and Gala Coral merger a good move?

Tuesday, June 23, 2015 Totally Gaming
Jim Mullen has highlighted the potential of the deal

Ladbrokes’ share price was up 13 per cent today (Tuesday) as markets and analysts welcomed news that it is in talks with fellow UK gambling giant Gala Coral over a possible merger.

Ladbrokes admitted that discussions have taken place with the board of Gala Coral Group regarding a possible merger of itself and Coral Retail, Eurobet Retail and Gala Coral’s Online businesses. The two combined companies would have had a combined turnover of £2.38bn in 2014. 

Ladbrokes was recently linked with a takeover by another rival, Paddy Power, while Gala Coral - which is owned by Candover Investments, Cinven and Permira – said it is also considering a flotation.

Earlier this month, analyst Peel Hunt backed Ladbrokes’ shares and strategy, and released a note today (Tuesday) suggesting that a merger would make sense.

“The deal presents obvious opportunities in an industry that has been hit by regulatory hurdles, making industry consolidation more likely,” the note said. “The combined group would benefit from synergies in costs and execution to generate shareholder value, as the companies use the same online platform which in our opinion reduces the execution risk of the merger.”

Peel Hunt also suggested that a merger could have more success than when then-Trade and Industry Secretary Peter Mandelson blocked Ladbrokes’ takeover of Coral, at the time owned by brewing company Bass, in 1998 saying it would “damage competition and disadvantage punters”.

The Peel Hunt statement added: “If talks proceed, the Competition & Markets Authority would have much to say about any proposed transaction, but we expect it may keep a more open mind than the first time Ladbrokes showed interest in Coral.”

In agreement, Bank of America Merrill Lynch analyst Simon Larkin, said: "This potential combination we think would make strategic sense."

Ladbrokes was backed by Peel Hunt earlier this month as it cited the possibilities of increased digital marketing spend, which is expected to be announced by chief executive Jim Mullen in an update on June 30. Mullen, who replaced Richard Glynn in March, admitted that greater scale and synergy of costs has been an important factor in the talks with Gala Coral.

Commenting on the move, Mullen said: “A merger with Gala Coral could create a combined business with significant scale and has the potential to generate substantial cost synergies, creating value for both companies’ shareholders. The board has not yet concluded whether a transaction is strategically attractive and can be delivered to shareholders on appropriate terms.”

Meanwhile, a Gala Coral statement released today (Tuesday) added: “Under the leadership of the current management team, Gala Coral Group has executed a successful turnaround which has delivered continuing strong growth.

“The company and its shareholders are evaluating all strategic options, including a possible initial public offering.”

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