Online betting giants Ladbrokes (LSE:LAD) and Coral have agreed to sell off 359 shops to clear a path for a merger of the two companies. The potential £2.7 billion pound merger of the UK’s second and third largest retail betting firms will make them the UK’s largest high street bookmaker.
This latest sale of shops, of which 322 will be purchased by rival Betfred. The sale was a stipulation of the Competition and Markets authority. The regulator had sought yo prevent a monopoly of local areas. Now that the final obstacle has been cleared it is expected that the merger will take place over the next couple of weeks.
Proceeds from the sale of the shops is expected to be around £55.5 million. This will be used to reduce current debt. As a result of the deal, Betfred who recently announced a 3 year sponsorship deal of rugby Super League will increase its high street presence by over a quarter.
Despite the sale the merged company, expected to be called Ladbrokes Coral, is expected to make up over 45 per cent of the UK betting market. This is in terms of total number of shops. Analysts at Morgan Stanley estimate that it will dominate UK betting revenues. Figures suggest just over a 47 per cent share of the UK market.
The merger of these two companies is another step towards consolidation in the sector. Earlier this year Irish group Paddy Power and Betfair merged to create the largest listed online bookmaker in the world. The company, now listed on the FTSE 100, is expected to drive further profits. Most of these will come through increased synergies. The separate platforms provided by each brand also provide a unique attraction to punters.
Current industry number one William Hill is also in merger talks with Amaya. The Canadian company which owns the Poker Stars franchise is looking to merge it’s operations with the UK company. The company has already resisted hostile takeover approaches by Rank Group and 888. Senior executives at William Hill are however understood to be keen to accept a merger if the deal is right. Costs savings and access to additional markets are key drivers of the move.
The UK online gambling sector has continued to show strong growth. Much of this has been fueled by increased uptake of online platforms and smart phone apps. Major sporting events have also contributed to the recent rise in revenues. The football World Cup and Olympics in particular contributing strongly to the latest revenue figures from the industry.
The industry is fairly resilient to global economic outlooks. As a result traders may do well to back further gains in the sector. Placing call options with brokers in the anticipation of further merger activity or revenue hikes in the sector could prove a shrewd move.
Ladbrokes shares traded slightly softer following the announcement. In early trading they were off 2.3p, down -1.65% at £1.3690