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Ladbrokes Gala, GVC Merger Talks End

Merger talks between GVC Holdings and Ladbrokes Coral Group have broken down, according to a Tuesday report by The Financial Times. Shares in Ladbrokes Coral dropped 9 percent on the news Monday, and though they have bumped up slightly since, they have yet to get back to where they were when the markets were excited about a possible deal.

Speculation last week was that GVC was working on a reverse takeover of Ladbrokes Coral in a deal thought to be valued at £3.2 billion, a 30 percent price premium based on the market capitalization of Ladbrokes Coral last week. The Financial Times reported that the deal would have been paid mostly in stock.

GVC is no stranger to big-time mergers. In September 2015, it acquired partypoker parent company bwin.party for approximately £1.116 billion. It was structured similarly to what the Ladbrokes Coral deal may have been, with most of the purchase coming in the form of GVC shares. Shareholders of bwin.party received 25 pence per share (of bwin.party) plus .231 shares of GVC Holdings. At the time of the deal, GVC’s stock price was 453 pence per share, so the total price was 129.643 pence per share.

Ladbrokes Coral, too, has a recent M&A history. Or, that is, the former companies Ladbrokes and Gala Coral. In July 2015, the former rivals merged in a deal estimated to be worth £2.3 billion. As Gala Coral was a private company and Ladbrokes was public (and the new company is public), Ladbrokes issued new shares of the company to Gala Coral shareholders. Ladbrokes shareholders will owned 51.75 percent of Ladbrokes Coral at the time of the merger.

The possible merger between Ladbrokes Coral and GVC Holdings excited the financial markets last week. Shares of Ladbrokes Coral closed at 127.10p on Wednesday, up from 118.70 the day before. After dipping Thursday, they shot up again on Friday to 130.60. Trading volume was massive all three days – about 17 million, 21 million, and 12 million shares changed hands Wednesday through Friday. Prior to that, only one day since the beginning of November saw trading volume above 10 million with most days coming in under 5 million.

With the news of the broken down talks, though, the stock price has come crashing down, closing at 119.10p on Monday and 116.00p Tuesday.

“Consolidation is front and centre of everything in the gambling sector right now, and even early-stage talks are taken seriously by the market,” David Jennings, an analyst at Davy Research, told The Financial Times on Monday. “What we saw today with Ladbrokes was the unwinding of expectations on Friday. With so much focus on incoming legislation, scale is important.”

Jennings thinks Ladbrokes Coral will get back in the M&A saddle in 2017, after its own merger is complete.

“They’ll do five months of heavy lifting to integrate, and then, after the regulatory review next year, you can start making a case for them becoming more active,” he said.

GVC shares have not been nearly as volatile. The stock price remained largely flat Wednesday and Thursday before closing up slightly on Friday, from 629.50p to 635p. On Monday, the stock price went back down to last week’s levels, though yesterday it closed down another 16 pence to 612.76p.

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