Ladbrokes a ‘buy’ after it strikes merger deal with Coral

Otmane El Rhazi from Mindful Money » Shares.

Bookmakers Ladbrokes has announced it will merge with smaller rival Coral, in what analysts have said will be a ‘transformative deal’.

 

The merged business is expected to be valued at £2.3 billion and will surpass current high street leader William Hill as Ladbrokes’ has 2,100 shops and Coral 1,845.

 

Ladbrokes chief executive Jim Mullen will become the boss of the new company, called Ladbrokes Coral.

 

Ladbrokes chairman Peter Erskine said: ‘Together, we will create a leading betting and gaming business. The transaction will provide an attractive opportunity to generate considerable value for both sets of shareholders.’

 

Shareholders in Ladbrokes will be offering 93 million new shares, representing 10% of the company. Coral’s private equity owners will own 48.25% of the shares in the new company and the remainder will be held by Ladbrokes shareholders.

 

Ladbrokes share price fell 0.78% to 127p on the announcement of the deal but Peel Hunt analyst Nick Batram said it was still a ‘buy’.

 

‘Ladbrokes has made a company strategy announcement, regarding a merger with Gala Coral and a 9.99% share placing. The merger between the two companies is positive for shareholders, with potentially c.60% upside before any inevitable revenue synergies,’ he said.

 

‘The deal is supported by Playtech, which will take a c.22% stake in the placing, and we see this not only as an endorsement of the deal, but as reducing the medium-term execution risk for the merger, with a major supplier backing the group’s success. The £120 million break clause to Gala shows concern about a third party spoiling the merger. We put our forecasts and target price under review, but view this deal as transformational for Ladbrokes and see very material upside to the shares.’