Ladbrokes Plc agreed to buy Coral Group in a share-exchange deal to create the U.K.’s biggest betting-shop chain and fight back against a tide of online competition.
The combined business will be called Ladbrokes Coral Plc and will have annual net revenue of 2.1 billion pounds ($3.3 billion), Harrow, England-based Ladbrokes said Friday in a statement. Ladbrokes will issue new shares to the private-equity owners of Coral’s owner, Gala Coral Group, giving Ladbrokes investors about 51.75 percent of the enlarged company.
The transaction brings together the No. 2 and 3 participants in a U.K. betting-shop industry creaking under the weight of Web-based competition. Together, they will control about 45 percent of the 3.1 billion-pound betting-office market, according to estimates provided by researcher Mintel, topping William Hill Plc’s 26 percent. In online gaming, it will be the third-largest operator.
The transaction “should provide considerable benefits for Ladbrokes shareholders” if it gains regulatory approval, Jeffrey Harwood, an analyst at Stifel, said in a note. That’s a“big if,” Harwood said.
Under the plan, both the Ladbrokes and Coral chains will be retained. Some betting shops probably will have to be sold to meet local competition concerns, the company said, although it has yet to hold talks with the Competition and Markets Authority, the body that will decide if the deal can proceed.
Ladbrokes also said Friday that it’s placing new shares representing 10 percent of its share capital, and that full-year operating profit will be about 20 million pounds lower than expected. It’s cutting the dividend for the year to 3 pence a share from 8.9 pence a year ago.
The shares fell 1.5 percent to 126.40 pence at 8:40 a.m. in London.
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 online rivals grab a bigger share of the market, while also being weighed down by changes in tax laws. Pooling resources with Coral provides the scale needed for a fightback.
While the two companies together would have a commanding position in the stagnant betting-shops market, their standing in the fast-growing online segment is much less pronounced: analysts at Exane BNP Paribas estimate that Ladbrokes and Coral combined have about 10 percent of the digital market.
Gala Coral’s private-equity owners include Apollo Global Management, Cerberus Capital Management, Park Square Capital and Anchorage Capital Partners. The funds have controlled the business since 2010.