Ladbrokes merger set to raise competition issues

Ladbrokes new chief Jim Mullen sees major pluses from the firms proposed merger with Gala Coral. Picture: AFP/Getty Images

FTSE 250-listed Ladbrokes said it was in early discussions with Gala to merge, forming a business with nearly 4,000 high-street betting shops.

The combined group would overtake William Hill as the biggest gambling firm in the UK, with experts estimating it would be worth close to £4bn. It would bring together around 2,100 shops from Ladbrokes and 1,845 from Coral.

But the deal raises possible competition concerns over a tie-up between the second- and third-largest bookmakers in Britain and brings back memories of an attempt by Ladbrokes to snap up Coral 17 years ago.

Ladbrokes tried to buy its smaller rival in 1998, but was forced to give up after the then British trade and industry minister Peter Mandelson said the deal had to be unwound on competition grounds and fears it would disadvantage punters.

One analyst said the two firms may be forced to sell as many as 15 per cent of the shops to appease competition authorities.

Ladbrokes said the merger talks related to Coral Retail, the UK bookies business, Gala Coral’s 870-strong Eurobet division in Italy and Coral’s online arm.

Jim Mullen, chief executive of Ladbrokes, said: “A merger with Gala Coral could create a combined business with significant scale and has the potential to generate substantial cost synergies, creating value for both companies’ shareholders.

“The board has not yet concluded whether a transaction is strategically attractive and can be delivered to shareholders on appropriate terms.”

Mullen, who was promoted to the top job three months ago, was due to unveil his keenly anticipated strategy review for Ladbrokes on 30 June, but the update is likely to be put back depending on the progress of the merger talks.

He said: “Since becoming chief executive, my focus has been on a more aggressive plan to build digital scale and grow our recreational customer base across all channels, which is key to creating a more sustainable and growing Ladbrokes.

“My plans are well advanced and I look forward to presenting them to shareholders.”

The merger talks do not include Gala’s 132-strong bingo business.

Gala Coral is currently owned by private equity companies Cinven, Permira and UK-listed Candover Investments.

Gala Coral, whose high street betting shop business employs more than 10,000 people and is headed by former HBOS chief executive Andy Hornby, said as well as the merger talks, it was looking at “all strategic options” for the firm, including a possible flotation on the stock market.

It added: “There can be no certainty that the discussions between Ladbrokes and Gala Coral Group will lead to any agreement and Gala Coral Group remains confident in its future as a standalone business with highly attractive future potential.”

Gala Coral reported half-year revenues of £684.8 million and underlying earnings of £135.4m in May.

Full-year figures from Ladbrokes in February showed a 13.5 per cent fall in profits to £98m in 2014.

Greg Johnson at Shore Capital said the rationale for the merger was “compelling”. But he cautioned: “We see significant potential hurdles to the deal.”