[toc]Last Friday, the Financial Times reported that gambling company GVC was in talks with bookmaker Ladbrokes Coral (paywall) about a possible takeover bid. The attempt was extremely short lived, and only hours after the market closed, the talks broke down.
At the beginning of November, GVC announced a special dividend. That was enabled by the early replacement of one funding line, and “continued positive trading.”
With the wind at its back, GVC looks to have decided to try an ambitious plan to buy Ladbrokes Coral.
Ladbrokes Coral is trading at a valuation of £2.2 billion ($2.8 billion), and according to the FT report, GVC was prepared to offer a premium of 30 percent. GVC’s own market cap of £1.8 billion is fully half a billion dollars less than its target, and over a $1 billion less than the price of Ladbrokes including the premium.
Had the deal gone ahead, the merged company would have created a $5 billion company. It would have a very large footprint in online and land-based sports betting, and a large share of the UK market.
Ladbrokes and Coral are still managing their own merger
Legally, the merger between Ladbrokes and Gala Coral only completed on November 1.
The new executive team headed by CEO Jim Mullen, formerly the Ladbrokes CEO, still faces a big task in executing the managerial side of the merger.
The UK Competition and Markets Authority demanded that the new company must sell off over 350 of its high street betting shops. This process is ongoing, as is the administrative integration of the two companies’ operations.
At this time, Ladbrokes Coral probably doesn’t want the management’s attention diverted by the prospects of another corporate action.
After a year sorting out the new management structure, the idea of doing it again with GVC is not something the company would enjoy doing over Christmas.
GVC could see clear benefits
The importance of scale in the current legislative environment is the driver behind much of the merger and acquisition activity over the last 18 months.
Over and above scale benefits, GVC could also propose that the merger of its online businesses with the mixed business of Ladbrokes Coral would find a fit that would enhance the new company’s market position and result in substantial cost savings.
Ladbrokes and Gala Coral both have close links with Playtech, which provides much of their online platforms. The merger of the two companies made sense in part because there were no major platform integration issues.
GVC has its own online sports betting and poker platforms. Subject to whatever time constraints existing Ladbrokes Coral agreements with Playtech embody, GVC could ultimately move all online gambling onto a proprietary platform.
The size of the GVC and Ladbrokes combined customer base could justify the cost of making the shift.
Gambling sector M&A shows no signs of slowing down
The immediate prospect of a merger between GVC and Ladbrokes Coral may have disappeared. However, the online gambling industry still offers plenty of scope for corporate maneuvers.
For the right price, William Hill could show an interest in GVC. The strength that GVC has in its online business would compensate for the current weakness in William Hill’s online operations.
William Hill has made it a priority to improve its online business. The latest trading update said that it was making progress.
Amaya is currently pondering a bid by David Baazov to take the company private. One of its largest investors, Spring Owl, has publicly condemned the proposal. That group suggested that if Amaya invites other investors to bid, the company could achieve a much higher price.
What seems certain is that online sports betting is consolidating in the hands of a few major operators.