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A Look Inside the Ladbrokes / Gala Coral Merger

As widely anticipated over the past several weeks, major European bookmakers Ladbrokes and Coral Group (commonly known as Gala Coral) announced a gigantic merger that will produce Britain’s largest sportsbook, taking over that honor from the venerable William Hill.

ladbrokesThe merger, valued at £2.3 billion (or about US $3.5 billion), will create a new firm called Ladbrokes Coral.  Pre-merger, the two firms combined to offer nearly 4,000 betting shops, and employed some 30,000 people.  Some trimbacks of duplicate shops and services are expected at some point down the road, though no shop closures nor labor downsizing is on the slate for the near future.

The merger calls for Ladbrokes to issue new shares worth 48.25% of the total valuation of the new company.  Existing Ladbrokes shares will account for the other 51.75%, accurately reflecting that the two companies are nearly equal in size and total revenue at the present time.  Ladbrokes CEO Jim Mullen will continue on as CEO of the new Ladbrokes Coral.

coral bonusThe two firms, once merged, are expected to save about £65 million a year in operational costs, and the combined Ladbrokes Coral is expected to generate about £2.1 billion in revenue in its first year of operation.  The combined company will continue to be traded on the London Stock Exchange as well.  Ladbrokes had once pursued Gala Coral back in the late ’90s, but was unsuccessful at that time.  More recently, Ladbrokes tried but failed in a hostile takeover attempt targeting 888 Holdings, which was itself in the news in recent days for its own acquisition of struggling bwin.party.

Though the Ladbrokes-Coral deal has been bandied about for some time, the jury is still out on exactly how good this deal will turn out to be for the two firms involved.  Ladbrokes eyed the move as a way to move more fully into the online space, which remains the segment of fastest growth.  Stodgy old Laddies, of course, has been around since 1886, and has been known as Ladbrokes since 1902.

Comments from company spokesmen indicate that while the crowded online space is part of the big picture for the new, combined Ladbrokes Coral, the revenue-generating engine of the nearly 4,000 land-based betting shops is also vital.  Those shops have come under attack recently for their increasing reliance on the controversial FOBT’s (Fixed Odds Betting Terminals) which have been connected in numerous reports to problem and addictive gambling behaviors.

(Click here for a look at Episode 1 of the BBC’s new “Britain at the Bookies,” which features something of a black eye for Coral in connection with a series of scenes featuring a problem gambling spending way too much money in a Coral betting shop.  Coral has since issued a statement attempting to put a positive spin on the episode, but the embers are still burning.)

An update on the merger in the Guardian, for instance, paints a less-than-rosy picture.  The Guardian piece quotes Jefferies stock analyst Ian Rennardson as saying, “We think Ladbrokes is in the last chance saloon, having today announced a profit warning, a dividend cut, a share placing and an intended merger.

“We remain skeptical about the merits of the strategic review and proposed merger with Gala Coral,” added Rennardson, “and see gamblers as the only beneficiaries of what could prove to be a marketing ‘race to the bottom’.”

Other industry pundits have suggested that Ladbrokes and Gala Coral learned very little from the failed merger of PartyGaming and bWin, which resulted in more than four years of uninterrupted losses and the eventual sale of the combined companies’ fragile shell to 888 last week.

Though some similarities between the two deals exist, it’s hard to see the new Ladbrokes Coral crashing and burning as thoroughly as bwin.party has in the last decade, if for no other reason than that the Ladbrokes and Gala Coral names (and in particular, Laddies), have multigenerational brand recognition, particularly in the UK.  Ladbrokes may have problems, but it may not quite yet be teetering on the brink.

As for the deal itself, it still has to be approved by the shareholders of both companies.  Any closure of a small number of British betting shops is likely to be done only to satisfy certain regulatory and anti-monopoly requirements.

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