GVC rolls dice on Ladbrokes Coral venture
THURSDAY saw Ladbrokes Coral announce that, following an approach by GVC, owner of the bwin and partypoker brands, its board is discussing a possible combination of the two businesses. The shares rose 29 per cent on the news, with shares in GVC rising 5 per cent.
As things stand, it looks like GVC will offer shareholders a minimum of 32.7p in cash plus 0.141 new GVC shares for each Ladbrokes Coral share. The total value of the package is 18.6 per cent higher than the value of Ladbrokes Coral the day before the news broke.
However, there could yet be an even greater windfall. Depending on the outcome of the government’s review into the industry, Ladbrokes Coral investors could be in line for a further 42.8p per share. This reflects the potential impact of a clampdown on fixed odds betting terminals. With more than 3,500 high street betting shops, Ladbrokes Coral gets significant profits from the controversial machines. These profits mean the value of the group is tied to the outcome of the review.
The maximum stake per play is currently £100, but a cap at anything from £2 to £50 is still possible.
GVC would only pay the additional 42.8p per share if the new restrictions aren’t too severe. Structuring the deal in this way reduces the risk of overpaying, and therefore makes a lot of sense.
As far as the combination goes, the two should be a good fit. GVC is an online sports betting and gaming specialist, while Ladbrokes Coral is more of a bricks and mortar operation. They also differ geographically. GVC has an international focus while the lion’s share of Ladbrokes Coral’s revenue is generated in the UK.
This means Ladbrokes Coral shareholders become less tied to the struggling UK high street business, while GVC’s exposure to potentially more volatile unregulated markets falls.
The deal could bring cost savings and meaningful earnings benefits, although, in gambling, there’s no such thing as a dead cert. GVC has good track record on integrating its past acquisitions. If the deal goes ahead, investors will be hoping it follows the form book.