Ladbrokes up 20% on Gala Coral talks

Shares in British bookmaker Ladbrokes jumped 20%, at one point yesterday, on news of its merger talks with Gala Coral, designed to create a $5 billion (€4.5bn) giant with the capacity to advance in the online gambling market.

The talks are the first major move by Ladbrokes chief executive Jim Mullen, who was appointed in March with a remit to grow digital services at Britain’s second- biggest bookmaker and close the gap on market leader William Hill.

The two businesses would have around 4,000 betting shops, almost half the UK market, meaning Britain’s competition authority would be likely to insist some shops are sold off in areas where they overlap.

If the talks are successful, the combined company could use cash generated by its high street business to spend more promoting online services, an area growing in demand and where Ladbrokes has traditionally been weak.

Gala Coral’s strongly performing online business holds 8% of a UK digital market led by Bet365, according to industry research group H2GC. Combined with Ladbrokes’ 6%, the two businesses would rival William Hill.

“This potential combination, we think, would make strategic sense,” Bank of America Merrill Lynch analyst Simon Larkin said, “

and, potentially have positive implications for the ability to successfully turn around Ladbrokes’ online operations.”

Ladbrokes said the talks were to combine the entities of Ladbrokes and Coral Retail, Italian online business Eurobet Retail and Gala Coral’s online businesses.

“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,” Mr Mullen said in a statement.

Exane Paribas analysts said corporate costs could be cut by £33m a year in total, with management and staff reductions and other synergies potentially reducing combined operational costs of over £1.7bn by 5% a year.

Mr Mullen said that the Ladbrokes board has yet to decide if the deal was “strategically attractive”. If the discussions advance, Ladbrokes may undertake an equity placing to strengthen the balance sheet of the combined company, it said.

Shares in Ladbrokes traded up nearly 18%, at 143.66p yesterday afternoon. Ladbrokes’ Irish division remains in examinership, but reports at the weekend suggested rival operator, Boyle Sports remains “committed” to a €25m bid to buy its Irish branch network and online channel.

Reuters (additional reporting Irish Examiner)