Ladbrokes-Coral Merger No Sure Bet as Competition Ruling Awaits

The word completion appears 26 times in Ladbrokes Plc’s announcement of its plan to merge with U.K. betting-shop competitor Coral Group. The only thing missing is when the companies actually expect this to happen.

Before Ladbrokes Coral Plc can be formally created, antitrust regulators from the Competition and Markets Authority must have their say. With the companies controlling about 45 percent of the 3.1 billion-pound ($4.8 billion) betting-office market between them, according to researcher Mintel, there is plenty to consider.

“The Coral transaction should provide considerable benefits for Ladbrokes shareholders, but this assumes that competition issues can be satisfactorily resolved, which is a big if,” Jeffrey Harwood, an analyst at Stifel, said in a note.

Ladbrokes needs to clear a hurdle that it failed to in 1998. Back then, a plan to acquire Coral was blocked by regulators, though since then the betting market has changed, with online wagering becoming a mainstream alternative to visiting a shop. That shift is what the companies are relying on to get the deal through, as combined they would control 14 percent of U.K. online betting, just above the 13 percent of leader William Hill Plc.

“We’ve done an awful lot of work on the competition situation,” Carl Leaver, chief executive officer of the company that owns Coral, said on a conference call. “We wouldn’t have got this far had we not been confident of a positive outcome.”

Selling Shops

The companies expect to have to sell some betting shops to resolve local competitive issues, Leaver said, adding that no shops are under threat of being closed. Still, the company has yet to hold any discussions with the CMA, so the outcome and timeframe of the transaction are unclear.

For Ladbrokes CEO Jim Mullen, who will hold the same position at the combined company, selling some of the combined company’s 4,000 betting shops may be a small price to pay. Merging with Coral will yield cost savings of at least 65 million pounds annually by the third year of the deal, he said.

Mullen also said Friday he sees opportunities to ratchet up growth by bolstering its online business and to increase shop visitors by boosting marketing and sponsorships. To pay for that, he plans to cut the dividend by about two-thirds, freeing up about 140 million pounds.

First though, he has to get the deal past regulators.

“Invariably, the CMA will have a significant hand in weighing this decision and affecting the outcome of the deal and what the future shop estate will look like,” Nick Batram, an analyst at Peel Hunt in London, said in a note.

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