Merger talks could form bookmaker with more than 4,000 shops and extra muscle to compete online
Ladbrokes and Gala Coral are in merger talks to create Britain’s largest bookmaker measured by number of betting shops.
The combined company would have a chain of more than 4,000 betting offices, leapfrogging market leader William Hill, which has almost 2,400. The enlarged group would also become a bigger player in the increasingly important online market.
If completed, the deal would be structured as a takeover of publicly traded Ladbrokes by Coral, which is owned by private equity firms. The combined company would then apply to list its shares on the London Stock Exchange. Shares in Ladbrokes jumped more than 20% to 147p upon news of the talks.
Jim Mullen, was appointed three months ago as chief executive to shake up Ladbrokes, which has struggled to compete in a betting market transformed by online gambling. He was due to set out his plans to shareholders next week but the presentation may now be put on hold depending on talks with Coral.
Mullen said: “Since becoming CEO my focus has been on a more aggressive plan to build digital scale and grow our recreational customer base across all channels, which is key to creating a more sustainable and growing Ladbrokes. My plans are well advanced and I look forward to presenting them to shareholders.
“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.”
The talks, which are at an early stage, raise the prospect of Andy Hornby once again working as a senior executive at a public company. Hornby, who is Gala Coral’s chief operating officer, was the chief executive of HBOS when the bank almost imploded and was rescued by Lloyds in 2008.
Hornby and other HBOS directors were condemned by the parliamentary commission on banking standards in 2013 for mistakes that led to the bank’s “colossal failure”. They are likely to suffer fresh criticism when a long-awaited regulatory inquiry into HBOS is finally published. No formal publication has been given.
Hornby, who worked at Asda before HBOS, ran Alliance Boots for almost two years before leaving in March 2011 and joining Gala Coral three months later.
Richard Buxton, head of equities at Old Mutual Global Investors, said Hornby deserved another chance if he was given the opportunity to work at another public company.
“Everyone agrees that he is a very good retailer. One can absolutely question the judgment of the board of HBOS in appointing him to a banking role. Should it be the case that he can never have a retailing role at a quoted company ever again? I think that would be quite a harsh judgment.”
Mullen, who would be the chief executive of any combined company, said the board had not yet decided whether a merger with Coral was the right strategic move at the right price. If the merger goes ahead, the combined company could sell new shares to investors to boost its balance sheet.
Coral, whose 132 bingo halls would be excluded from a merger, has more than 1,800 betting shops in the UK while Ladbrokes has almost 2,300. Both companies are trying to expand online. Bookmakers’ in-store activities have been hurt by a government clampdown on highly profitable fixed-odds betting machines while online bets have been subject to a 15% point of consumption tax since December.
Ladbrokes tried to buy Coral in 1998 from its previous owner, the brewer Bass, but the deal was blocked by Peter Mandelson, who was the then-trade and industry secretary. Mandelson said the takeover would “damage competition and disadvantage punters” by leaving Ladbrokes and William Hill as dominant players.
But online gambling has since shaken up the betting market, with multiple operators competing for gamblers’ money via mobile phones, tablets and computers.
Buxton said the Competition & Markets Authority would probably make the combined company sell or close many of its betting shops.
“It’s going to hinge on the CMA concluding that the world has changed. I think the industry has changed hugely since these companies originally tried to combine.”
Ladbrokes has been the subject of takeover talk for some time, having drifted compared with its rival William Hill and aggressive newer entrants to the market such as Ireland’s Paddy Power – mentioned as a potential suitor – and the online gambling exchange Betfair.