Reaction: Coral is key to merged digital business
Raft of industry insiders say the success of a Ladbrokes and Gala Coral merger will rest upon who calls the shots
A combined Ladbrokes and Gala Coral operation will have a better chance of success if Gala Coral management remains a key part of the digital business, a number of senior industry figures have said.
Speaking to eGaming Review following news that Ladbrokes and Gala Coral had opened talks over a potential reverse takeover, commentators felt a combination of Gala Coral’s digital expertise and Ladbrokes’ retail nous had the potential to challenge the established market leaders.
“Gala Coral Interactive is a becoming a very good business,” a senior executive source at a top tier operator said. “It’s taken them a couple of years to find the formula and they made a few false starts but they have really started to get it right and are running the business pretty well now.
“If you were to add a senior guys from Ladbrokes to the Gala Coral team, you’d actually have a pretty decent team to, if not worry William Hill, certainly get closer, and hurt Paddys in the process,” he added.
Track record
That general view was backed up by another senior executive speaking under condition of anonymity who said Gala Coral’s recent results proved it was capable of growing a business in a competitive UK market through the development of innovative digital products.
“Over the past year or so Gala Coral has done some really interesting things online so if you take that innovation and get the Coral team to run the online business, then you add to that the skills of Ladbrokes retail, which is still a very good skill set, I think they can take on William Hill,” he said.
While Ladbrokes has been live with Playtech’s full suite of digital products for little more than a year, Gala Coral has had the benefit of three years of Playtech assistance, a factor which last year led to a 104% rise in online EBITDA to £49.5m.
One senior director at an international gaming company speaking anonymously said if the enlarged firm hopes to succeed it must ensure it hands responsibility for the digital business to Gala Coral’s online management team.
“For me it depends on who gets to run what,” he said. “If it is Gala Coral management taking over Ladbrokes and running it [the digital business] then I think it could be really successful and everyone should worry.
“Although they are both powered by Playtech, Coral do digital better than Ladbrokes – so if Ladbrokes end up steering the ship I think its rivals will be breaking open the champagne,” he added.
Two becomes one
Exactly how much scale can be added via a merger of two UK-focused digital businesses is difficult to quantify with some degree of customer overlap to be factored in. And while Ladbrokes CEO Jim Mullen has spoken of his desire to build scale, many believe one of the main drivers of a deal will be the potential costs savings.
Unfortunately for those involved, cost savings often means job losses and a combination of Gala Coral and Ladbrokes is unlikely to be any different. But according to a chief executive at a leading UK gaming company, where the axe falls should tell us plenty about the direction of the merged group.
“At the heart of these talks are the cost synergies that can be derived – moving from two sports trading and risk management teams to one, two to one marketing team, ops teams, tech teams etc.,” the CEO said.
“Coral and Ladbrokes makes sense because they’ve got a big overlap in their operations – same products, same platforms in OpenBet and Playtech, and operations in same geographies to an extent – UK, Gibraltar and Israel.
“It also should mean one exec management team and that is one question that is unanswered – who is leading the deal – Ladbrokes or Coral? It is important as it will determine who loses the jobs – Ladbrokes or Coral.
“Because at the heart of this there are going to be big job losses in one or both companies. If it does take 12 months to complete, they will have a job keeping everyone as there will be a lot of uncertainty,” he added.
Changing times
Both sets of management have been keen to stress that talks are still at an early stage and the involvement of the UK Competition and Markets Authority will mean any deal could yet be another 12 months away.
A one-year lead-in, which analyst Simon French of Cenkos Securities said would leave the two groups “incapacitated at a time of rapid industry change”, followed by a 12-18 month integration process is hardly ideal. But for Ladbrokes, it could be argued the timing of any upheaval may not be so bad.
“They can’t make things at Ladbrokes worse,” one exec said – referring to the fall in Ladbrokes’ financial performance over the last few years.
“That said, a chaotic merger would create opportunities for the likes of William Hill and mergers are chaotic no matter how well you plan them,” he added.
However, should the talks break down or be checked by the competition authority, as was the case when Ladbrokes attempted buy Coral in 1998, you’d expect both parties will remain active in the M&A market.
“It’s a long way from midnight at the disco,” as Ivor Jones, analyst at Numis Securities, put it. “Now that both Gala Coral and Ladbrokes are more clearly in play, it is more likely, in our view, that they will find partners.”