The Telegraph has reported that the two companies are in talks about a tie-up that would create the country’s biggest bookmaker. Combined, the businesses currently run more than 4,000 betting shops out of an estimated 8,700 in the UK.
City analysts believe competition regulators will demand that shops are sold to approve a deal, which could also mark the return of Andy Hornby, the former HBOS chief executive, to a public company.
However, analyst Richard Stuber at Nomura warned that the Competition and Markets Authority (CMA) could press the combined company to reduce its share of the retail betting market from around 45 per cent to 30 per cent, which would lead to the sale of up to 1,300 shops. The total is equivalent to 15 per cent of all betting shops in the UK.
Such drastic disposals would call into question the logic of the deal, given the Coral business only has 1,845 betting offices. It would also be difficult finding buyers for so many shops, especially given Ladbrokes is likely to seek to offload underperforming sites, meaning that in reality, many of those earmarked for sale would have to be closed.
Seventeen years ago, an attempt by Ladbrokes to buy Coral was also scuppered by competition worries.
The rivals are yet to agree terms on the merger however and Ladbrokes has not yet contacted the CMA about the tie-up.
A source close to the deal, who expects far fewer disposals, suggested that Ladbrokes would press the CMA to take into account the online businesses of Ladbrokes and Coral, where combined they have a much smaller market share. Merging with Coral’s successful digital business is one of the main planks of the deal.
“It’s about growing scale,” said Jim Mullen, the chief executive of Ladbrokes, who vowed the Coral brand would not disappear. “You’d have two branded companies, where we could pool all of our channel strategies and grow our digital businesses.” He is expected to be CEO of the merged company.
Ladbrokes has struggled to keep up with its rivals amid the explosion in online betting, particularly on mobile devices. Privately-owned Coral, meanwhile, relaunched its digital operation in 2012 and has since enjoyed strong growth.
A deal would be structured as a reverse takeover, which would see Coral’s betting shop businesses in the UK and Italy and its online business reverse into Ladbrokes’ stock market listing. Mr Hornby, who was criticised for his time running HBOS, which failed in 2008, is currently chief executive of Coral Retail.
Gala Coral’s bingo business, comprising 132 halls, is not part of the deal and would be sold separately. The company, which is owned by a group of private equity houses including Anchorage Capital Partners, Apollo Global Management and Cerberus Capital Management, said on Tuesday that it would press ahead with a stock market float if merger talks collapsed. The financial investors took control following a lengthy restructuring, after Gala Coral struggled under its debt pile.
Were the deal to happen, Ladbrokes might undertake a share sale to reduce the combined company’s net debt, although less than 10pc of its shares would be placed. Ladbrokes stock jumped 14.7 per cent to 140p on news of the merger talks.
