GVC and Ladbrokes Coral deal triggers dramatic rally

Gambling industry consolidation was neatly kicked out of the long grass today as online gaming firm GVC Holdings and bookmaker Ladbrokes Coral revealed a way to get their long-awaited union back on track.

Through the inclusion of a contingent value right (CVR), the pair hope to have sidestepped the ongoing industry uncertainty caused by the Government's review into the regulation of Fixed Odds Betting Terminals (FOTB).

This means that while the potential deal values Ladbrokes Coral at 160.9p or £3.1 billion, a CVR of up to 42.8p will be paid depending on the outcome of the review. This could value Ladbrokes Coral at up to £3.9 billion.

A decision by the Department for Culture, Media and Sport is due next month on the extent to which firms must cut the current £100 maximum stake on FOBTs.

The most likely outcome within the proposed range of £2 to £50 is £20, which it is thought could lead to a 20% hit on machine revenues at Ladbrokes Coral.

So having caused plenty of gyrations already for industry share prices, there's now the added impact that the review will have on a major takeover deal.

It will be the third time this year that the two companies have held talks over a combination. Ladbrokes Coral has 3,500 shops, having grown through the merger with Gala Coral in 2016.

Previous deals involving GVC, whose brands include Foxy Bingo, have featured Sportingbet in 2012 and bwin.partygaming in 2016. Its deal-making chief executive Kenny Alexander, who joined GVC In March 2007, will be the boss of the combined Ladbrokes group should the takeover go through.

The talks are bound to kick-start speculation about other potential deals involving the likes of William Hill, Rank or PaddyPower Betfair, among others.

Alexander let those companies know today that they had missed a trick by not acting sooner.

He told the Financial Times: "People in this industry have been talking for years about consolidation, consolidation, consolidation. We are very ambitious, and very aggressive.

"They have been sitting on their hands. I don't know what they're waiting for."

Ladbrokes Coral shares jumped 31% to 177.6p and GVC Holdings rose by 9% to 987.5p, despite some worries that the large retail estate of Ladbrokes could potentially act as a drag on GVC's online business.

Goodbody's gaming and leisure analyst Gavin Kelleher said: "We believe that GVC management has a strong track record and investors will be willing to back management to find a long term structure whereby retail will not dilute the overall growth profile of this group."

He said the potential for synergies and the increased scale of the combined business were significant positives for GVC.

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