Billionaire Desmond Urges Ladbrokes Investors to Reject Coral

  • Board should consider all options in `active M&A market'
  • Letter could encourage potential Ladbrokes suitors: analyst

Dermot Desmond waits for the start of their Champions League Group H soccer match against Ajax at Celtic Park, Glasgow, Scotland.

Photographer: Scott Heppell/AP Photo

Irish billionaire Dermot Desmond has urged Ladbrokes Plc shareholders to reject the U.K. betting company’s merger with competitor Coral Group, describing it as a “bad deal” and suggesting that the bookmaker should put itself up for sale.

In a letter to investors, Desmond said the Ladbrokes board needs to evaluate “all strategic options” in a “very active M&A market.” The transaction, announced in July, will give control to Coral’s private-equity owners, he wrote.

“The real winners in this transaction are the Coral shareholders,” Desmond said in the letter, posted on the website Ladbrokes said it’s “not surprised” by his views, and remains confident that shareholders -- who vote on the deal next week -- will see the merits of the combination.

The resistance by Desmond, who sold the Betdaq betting exchange to Ladbrokes in 2013 and owns a stake in the bookmaker, complicates a deal that will bring together the No. 2 and 3 participants in the U.K. betting-shop industry. The billionaire, an open critic of Irish banking policy during the financial crisis, said the transaction will likely require significant disposals of betting shops to meet antitrust concerns, potentially assisting competitors.

Other Suitors

The letter could encourage other suitors for Ladbrokes to come forward, according to Peel Hunt analyst Nick Batram. Ladbrokes shares were little changed at 109.3 pence at 12:56 p.m. in London, and have declined about 15 percent since the Coral deal was announced.

“A competitive situation should be good news for shareholders,” Batram wrote in a note.

It’s been an active year for betting-industry consolidation as increased regulation and taxation cause companies to seek efficiencies through mergers. Paddy Power Plc agreed to acquire Betfair Group Plc for 2.87 billion pounds ($4.4 billion), while GVC Holdings Plc is buying Digital Entertainment Plc for about 1.12 billion pounds.

In his letter, Desmond made reference to advances in the price of both Paddy Power and Betfair shares -- 35 percent and 20 percent, respectively -- since their merger was announced. The gains are “a signal that the market believes in the strategy,” he said, while the drop in Ladbrokes is “a clear indication that the market considers the proposed transaction to be value destructive for Ladbrokes’ shareholders.”

‘Extensive Dialogue’

Ladbrokes said Desmond’s missive comes as no surprise as he has “been in extensive dialogue with the management team and not been afraid to talk of undertaking such action,” a spokesman said via e-mail. “We remain confident that shareholders see the attraction of the proposed deal.”

Desmond estimated that the Ladbrokes-Coral merger is likely to be delayed until the middle of next year as the U.K. Competition and Markets Authority assesses the combined company’s 44 percent share of the betting-shop market. The regulator may require as many as 1,000 shops to be sold or closed, most likely at a discount, he wrote. Ladbrokes shareholders will vote on the deal Nov. 24 in London.

The billionaire also questioned the payment of 75 million pounds to Playtech Plc, Ladbrokes’ gaming software partner.

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