GVC Holdings Acquires Ladbrokes Coral

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Wednesday, December 27th, 2017 | Written by Adam Brown

GVC Holdings has closed out 2017 on a hugely positive note after its bid to acquire rival company Ladbrokes Coral was finally approved by the operator. The deal is estimated to be worth around £4 billion ($5.35bn), and once completed will create one of the UK’s largest businesses.

Consolidations

Since the UK liberalized its gambling industry following the introduction of The Gambling Act of 2005, the market has grown exponentially leading to a series of mergers within the industry. In 2016, for instance, GVC bought bwin.party for £1.1 billion ($1.7bn), while Ladbrokes also acquired Coral to overtake William Hill as the country’s biggest bookmaker. As a result, it now has 3,500 bookmakers on the High Street employing 25,000 staff throughout the UK.

Once GVC Holdings finalizes its deal to merge with Ladbrokes Coral, the new entity is expected to save more than £100 million per year in pre-tax costs, and commenting upon the development Ladbrokes Coral CEO John Kelly explained:

“The creation of one of the world’s largest listed sports betting companies, combining a portfolio of established brands, proven technology and leading market positions in multiple geographies, is a truly exciting prospect.”

Price Dependent on FOBT Review

On its two previous attempts to purchase the company, GVC Holdings made a £3.2 billion offer followed by a £2.7 billion one, with shareholders subsequently rejecting both outright. The 164.4p price per Ladbrokes Coral share price attached to the latest proposal, however, appears to have hit the right note. Nevertheless, the £3.2 billion offer has the potential to increase by a further 42.8p per share, or around £4 billion, depending upon the result of a study into fixed-odds betting terminals (FOBTs) currently being undertaken by the Department for Digital, Culture, Media & Sport (DCMS).

As the UK’s gambling market has grown, the Gambling Commission has become increasingly concerned about making sure that the levels of problem gambling in the country do not follow the same path. One of the biggest areas of concern relates to the proliferation of FOBTs located at bookmakers on the high street, especially with gamblers able to wager up to £100 per spin on these machines. Against this backdrop, the UK government is now considering lowering the maximum stake permitted to somewhere in the region of £2 to £50.

Meanwhile, Ladbrokes Coral collected £800 million from its FOBTs in 2016, meaning any decision made by the UK government in this regard will have a significant impact on the eventual price paid by GVC Holdings.

Economies of Scale

Referring to some of the benefits the new company can expect to experience after the deal completes, John Kelly, Chairman of Ladbrokes Coral, said that the previous merger between Ladbrokes and Coral clearly demonstrated the efficacy of such a move.

“The management team have delivered a very successful merger that has created a leading betting and gaming business built on strong brands well positioned in key markets. We have a leading multi-channel offer that utilises our retail and on-line businesses and offers us a promising future,” explained Kelly.

Looking ahead, Kelly said that combining its operation with GVC will help speed up the operator’s goal of improving its customer experience, accelerating online growth, and creating a “more diverse and extensive international portfolio of businesses.” Kelly further stated that the proposed acquisition would result in a material increase in value for shareholders.

Share Price

GVC stocks have seen their price fluctuate between 992.50p and 586p this year, and as of today have been trading at 920p, or up by 1.56% on the day. This then gives GVC a market capitalization of £2.75 billion. Ladbrokes shares, on the other hand, have varied in price in 2017 from a low of about 111p to a high this month of 178.6p. Following announcement of the acquisition, shares in Ladbrokes are currently up by almost 2% to near their all time high, giving the operator a market capitalization of £3.42 billion. As John Kelly subsequently explains:

“The acquisition has compelling strategic rationale allied to an opportunity to use the best of both from proven management teams and will create material shareholder value. It secures earlier delivery of our long-term value potential, which is why the board of Ladbrokes Coral has unanimously recommended GVC’s offer