Ladbrokes Gambles on Coral Union to Battle Web Competition

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Ladbrokes
A customer looks up at the screens for information at a branch of Ladbrokes in central London. Photographer: Chris Ratcliffe/Bloomberg

Ladbrokes Plc’s new Chief Executive Officer Jim Mullen is set to start his reign by placing a pivotal wager -- merging the U.K. bookmaker with old rival Coral.

Only three months after taking charge of the faltering betting company, Mullen is considering a deal that would create an industry leader, bringing together the number two and three participants. Together, the combined business would control about 45 percent of the 3.1 billion-pound ($4.9 billion) British betting-shop market, according to estimates provided by researcher Mintel, topping William Hill Plc’s 26 percent.

Both companies need to strengthen. Ladbrokes in particular was slow to adapt to the online betting revolution sparked by the emergence of platforms such as Betfair Group Plc, and has seen Web-based competitors grab a bigger share of the market, while also being weighed down by changes in tax laws. Pooling resources would provide the scale needed for a fightback.

“Consolidation between companies is the effective way of gaming companies staying competitive and profitable,” Nick Batram, an analyst at Peel Hunt, said in a note.

Ladbrokes and Coral said late Monday they were in discussions on a merger that may involve a sale of shares to strengthen the enlarged company’s finances.

Just the fact that they are talking shows how much the industry has changed in the last two decades. When the British government blocked a previous attempt by Ladbrokes to acquire Coral in 1998, Betfair didn’t even exist. Since then, the landscape has changed, first with online wagering and more recently gambling by mobile devices.

Commanding Position

While the two companies together would have a commanding position in the stagnant betting-shops market, their standing in the fast-growing online segment would be much less pronounced: analysts at Exane BNP Paribas estimate that together they’d have about 10 percent of the digital market.

The shift away from betting shops and toward online means the government has less reason to become involved than it did 17 years ago, although the prospect of regulation still exists. Ladbrokes controls about 24 percent of British betting offices and Coral 21 percent, giving the Competition and Markets Authority reason to seek divestments this time around, according to analysts at Stifel.

For Ladbrokes chief Mullen, having to offload some of the combined company’s 4,000 betting shops may be a small price to pay. Merging with Coral would allow the companies to reduce combined operating costs of 1.7 billion pounds by about 5 percent, Exane said. Revenue could also rise by as much as 2 percent, the analysts said.

Even though a transaction has yet to be agreed, such a prospect was reflected in a Ladbrokes share price that soared 15 percent to 140 pence at the close of trading in London. That was the steepest one-day gain since February 2000.

“The deal presents obvious opportunities,” Peel Hunt’s Batram said.

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