Ladbrokes, Gala Coral Mull Merger

Ladbrokes executives headed by new CEO Jim Mullen (l.) are contemplating a £3.5 billion merger with Gala Coral that would create Britain’s largest bookmaker. But Ladbrokes may have to sell many of the shops that would be owned by a combined company.

Executives of Ladbrokes, Plc. And Gala Coral, two of Britain’s largest bookmakers, are contemplating a merger that would create the U.K.’s largest bookmaking operation

Ladbrokes executives, headed by new CEO Jim Mullen, have been making management moves and testing the regulatory waters for a possible £3.5 billion merger that would create a single company controlling nearly 4,000 high-street betting shops across the U.K. The operator that would be the merged company’s closest competitor, William Hill, has 2,400 outlets.

“A merger has the potential to generate substantial cost synergies, creating value for both companies’ shareholders,” Mullen said in a press release. “The board has not yet concluded whether a transaction is strategically attractive and can be delivered to shareholders on appropriate terms.”

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

Those synergies would likely involve closing as many as 1,000 of Ladbrokes’ betting shops. Regulators are expected to require the company to downsize for competitive reasons, since the combined company would control nearly half of the industry in the U.K. Speaking to London’s Telegraph newspaper, analyst Richard Stuber of Nomura said Britain’s Competition and Markets Authority (CMA) could require the merged company to reduce its share of the retail betting market to 30 percent.

Mullen told the Telegraph the merged company would retain both brands of the individual companies. “It’s about growing scale,” he said. “You’d have two branded companies, where we could pool all of our channel strategies and grow our digital business.”

The deal would be structured as a reverse takeover, in which privately owned Coral’s betting shops in the U.K. and Italy and its online business would go under Ladbrokes’ stock market listing. Mullen would likely be CEO of the merged company. The company, which is owned by a group of private equity houses including Anchorage Capital Partners, Apollo Global Management and Cerberus Capital Management, indicated that it would press ahead with a stock market float if merger talks collapse.

Meanwhile, Mullen, who took over as CEO of Ladbrokes in March, continued his effort to restructure the company’s management to achieve greater efficiencies ahead of any merger. He announced that the company’s international management will be restructured, with Damian Cope, managing director of international and group strategy, leaving the business and other positions being examined for possible redundancy.

The restructure of its international operations, will see the existing locally based management teams continue as normal with Australia MD Dean Shannon reporting directly to Mullen.

Ladbrokes Belgium business, led by Managing Director Alexis Murphy, will report directly to Lee Drabwell, managing director, U.K. retail. The joint venture in Spain, with Ladbrokes represented by Mark Fowler, Sportium retail director, will liaise directly with Adam Greenblatt, corporate development and strategy director.

“Our international businesses each have strong management teams and do not require extensive support from a centrally based International team,” Mullen said. “This move will reduce costs and bring the international businesses closer to our Exco team. The resulting savings will enable us to support the increased investment in our digital business which is essential to the future of the Group.”

Over all its operations, Ladbrokes reported a large fall in pre-tax profit for 2014, from £68 million ($106.8 million) to £38 million ($59.7 million). The company said that it expects to close 60 U.K. shops this year.