Ladbrokes-Coral Merger Receives Conditional CMA Approval

The massive merger planned between Ladbrokes and Gala Coral that promises to reshape the UK and Europe-wide betting scenes has received a provisional approval from the UK’s CMA (Competition & Markets Authority), with the likely condition that the new combined entity, Ladbrokes Coral PLC, must divest itself of 350 to 400 betting shops across the UK to alleviate monopolistic concerns.

Four greyhound racetracks operated by the proposed merger participants — two each owned by Laddies and Gala Coral — will not need to be divested according the the CMA’s provisional findings.

The announcement was released by the CMA on Friday, though recent climbs in the share prices of the two companies helped fuel some media speculation that conditional approval had been granted.  The CMA, in its announcement, presented a studied, neutral face to the announcement, offering the following:

The CMA has provisionally found that the merger between Ladbrokes and Coral may give rise to competition concerns in a large number of local areas.

In order to resolve these concerns, around 350 to 400 shops may have to be sold for the merger to be conditionally cleared, if the Competition and Markets Authority’s (CMA) final report were to confirm its provisional findings and divestiture would be a suitable remedy.

Regardless, the announcement is unmistakeable good news for the planned merger.  Industry analysts had estimated that the two companies might be forced to sell as many as 1,000 branded betting shops (LBOs, or licensed betting offices), or nearly a fourth of the total retail outlets operated by the two firms.  Instead, the suggestion from the CMA, which can be read as just shy of a regulatory order to divest, is much more lenient.

The conditional approval also represents a defeat of sorts for current market leader William Hill, which had tried to put the kibosh to the proposed Ladbrokes-Coral deal by protesting to the CMA that the merger would reduce UK market competition and adversely affect consumers’ betting options and value of services received.  William Hill ad successfully used the same tactic in helping to block and early Ladbrokes-Gala Coral deal, back in 1999, but the CMA found that the market conditions had changed enough to allow the merger tomove forward this time around.

One of those changes, of course, has been the advent of online betting, which has made access to a specific LBP far less vital and subject to monopolistic concerns.

Martin Cave, the CMA’s Inquiry Chair, summarized the authority’s findings as follows:

“We’ve provisionally found that the merger between two of the largest bookmakers in the country may be expected to reduce competition and choice for customers in a large number of local areas. Although online betting has grown substantially in recent years, the evidence we’ve seen confirms that a large number of customers still choose to bet in shops – and many would continue to do so after the merger.

“For these customers, competition comes from the choice of shops in their local area and it’s they who could lose out from any reduction of competition and choice. Discounts and offers of free bets to individual customers are ways betting shops respond to local competition which could be threatened by the merger. We’re also concerned that such a widespread potential reduction in competition at the local level could worsen those elements that are set nationally such as odds and betting limits.

“We’ll now consider responses to our provisional findings before coming to a final decision. If our provisional findings are confirmed and divestiture would be a suitable remedy, Ladbrokes/Coral may have to sell a large number of shops to a suitable purchaser or purchasers in order to preserve competition in those local areas. We’ll need to look closely at the exact number of shops and areas that would be involved – the overall size and complexity may mean that the sales need to be substantially completed before the merger can go ahead.”

Ladbrokes and Gala Coral are believed to have already received third-party offers for some of their existing LBOs, which will likely be selected from a larger group of 659 areas spread across the UK where the CMA believes the planned merger could adverse consumers’ locally-available betting options.

Ladbrokes and Gala Coral currently ran second and third, respectively, behind Bill Hill, in both the number of LBOs operated and total amounts when wagered.  When one adds in fourth-place Betfred, the four companies control 87% of all LBOs in the United Kingdom.

Ladbrokes and Gala Coral issued nearly identical statements late on Friday indicating their general approval with the CMA’s report.  From Ladbrokes:

Ladbrokes notes the announcement from the Competition & Markets Authority (CMA) that the merger between Ladbrokes and Coral may be approved subject to shop divestments. We further note that the CMA is therefore minded to clear the transaction subject to agreeing to appropriate remedies at a local level with a range of 350 to 400 shops identified for disposal.

We believe this represents a significant step in the merger process. Our focus now will continue to be to work with the CMA to progress the merger to focus on finding a suitable buyer or buyers in order to deliver the necessary remedies.

And from Gala Coral:

Gala Coral notes the announcement from the Competition & Markets Authority (CMA) that it is provisionally minded to clear the proposed merger between Coral Group and Ladbrokes plc subject to agreeing appropriate remedies. Gala Coral will continue to work with the CMA in order to agree the remedies, but the CMA has indicated that the sale of 350-400 shops would enable a final determination in favour of the proposed merger.

Other regulatory hurdles still remain to be cleared, but none appear insurmountable.  The official merger creating Ladbrokes Coral plc is expected to take place later in 2016.