A look at GVC’s attempted bid for Ladbrokes Coral
EGR examines why the deal fell through and whether the mega-merger still has a chance
GVC made waves this week when news broke in the FT that it had made another run at Ladbrokes Coral. Although the talks have been concluded for now, the negotiations threw up some interesting talking points.
Why the deal fell through
EGR understands the discussions fell apart as a result of poor timing and disagreements about the valuation of risk. On the LCL side, that centred on the potential cap on FOBT stakes, and on the GVC side there was disagreement on how to value grey market revenues – Turkey in particular.
Is that the end of it?
Probably not. One person familiar with the talks said the outcome of the Triennial Review will be like “a starter’s gun for industry consolidation”.
Kenny Alexander, CEO of GVC Holdings
GVC CEO Kenny Alexander is on record as wanting to close one more big deal, while LCL said it has a duty to shareholders to evaluate every deal to see if it can deliver value.
Market reaction
News of the talks only emerged once they had broken down, causing the share price of both companies to dip slightly, with Ladbrokes Coral falling 0.2% on Tuesday to 119.8p while GVC dipped 0.1% to 750.5p.
By contrast, listed rivals all took a step forward on the news, with Hills up 1.9% to 244.5p, Paddy Power Betfair up 0.6% to 7195p and Playtech up 0.1% to 989.5p.
Price
The deal reportedly valued Ladbrokes Coral at roughly 140p or £2.7bn, rising to £3.6bn, pending a positive outcome to the Triennial Review.
For context, equity research firm Berenberg said it would value LCL at a maximum of 115p per share in the case of a negative Triennial outcome, i.e. a maximum of £2 per spin.
Berenberg’s Robert Ciaccia added: “The difference between that and the £1.40/share allegedly offered by GVC would have come from synergies (as a reminder, GVC has proprietary technology while LCL is totally dependent on Playtech, so room for synergies is enormous only on that side).”
Size of combined firm
A combined firm would boast a market cap of around £4.5bn, with revenues of well over £1bn in H1 (LCL has not yet reported its H1 results.).
For comparison, Paddy Power Betfair reported H1 revenues of £827m.
The FOBT issue
As mentioned above, one of the issue with the deal was timing, with reports emerging in recent weeks about increasingly harsh stakes on FOBT’s. However when that is resolved, Alexander has made it clear he is open to taking on a vast retail estate.