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Ladbrokes and Coral merge into giant 25/07/2015
Richard Whitehouse
The move will take it past the current high street leader, William Hill, combining Ladbrokes' 2,100 shops with Coral's 1,845.

Ladbrokes has announced the completion of its proposed merger with rival operator Gala Coral, in a deal that will lead to the creation of a business worth approximately £2.3 billion (€3.2 billion/$3.6 billion).

Both businesses expect the newly branded ‘Ladbrokes Coral’ operation to boast net revenue of £2.1 billion as well as earnings before interest, tax, depreciation and amortisation of £392 million, excluding cost synergies of at lest £65 million.

Under the merger agreement, Ladbrokes will issue new ordinary shares to the existing shareholders of Gala Coral representing 48.25% of the new combined entity, while existing Ladbrokes shareholders will own 51.75% of the business.

Jim Mullen, currently serving as chief executive of Ladbrokes, will take on the same role within the new business.

Andy Hornby, former chief executive of bailed out bank HBOS and current Gala Coral chairman, will become chief operating officer of the merged entity and will be responsible for its estate of betting shops and digital operations.

Gala Coral chief executive, Carl Leaver, will become executive deputy chairman for a term of 12 months post completion and will lead delivery of synergies.

In addition, John Kelly, senior independent non-executive director of Ladbrokes will take the role of non-executive chairman, while Gala Coral chief financial officer, Paul Bowtell, will take the same role at the combined company.

“This is a major strategic step for Ladbrokes which firmly accelerates our strategy to improve the customers' experience and build recreational scale,” Ladbrokes chairman Peter Erskine said. “Together, we will create a leading betting and gaming business combining strong brands with an attractive multi-channel offering and an extensive national and international coverage.”

Gala Coral chairman Rob Templeman added: “This strategic combination is a natural fit and will offer further opportunities for growth. “Together, the two businesses will have a strong digital presence with market-leading technology, innovation and access to significant resources to drive continued growth and deliver enhanced returns for all shareholders.”

News of the merger comes as Ladbrokes announced a new three-year marketing-led plan to expand its customers base and build scale.

The firm aims to grow its UK digital recreational sports betting customer base, increase footfall across its UK retail business, deliver multi-channel revenue growth from its UK retail and digital operations, as well as accelerate the growth of its Australian division.

Mullen said: “We will implement this programme responsibly with care for the interests of our staff and customers but this programme is urgent, overdue and essential if we are to build a more sustainable and valuable Ladbrokes. This plan is not without its challenges or impacts, particularly upon dividends in the short-term, however I am confident that this time, it is deliverable."

The plan will be rolled out on the back of Ladbrokes’ half-year trading update, in which it revealed mixed results for the six-month period through to June 30. Headline net revenue was down by 0.1% on a year-on-year basis to £588.8 million, although, when excluding high rollers, this result was up 1.3% to £585.4 million. Revenue from its UK retail operation was up 3.2% to £410.5 million, while digital revenue jumped 6.9% to £112.1 million but posted a loss of £11.5 million, compared to a £3 million profit last year.

Revenue from its European retail operation was up 1.7%, but its core telephone betting operations suffered a heavy drop of 53.4% to £2.7 million. Headline operating profit amounted to £38.9 million, down 31.5% on the same period last year.

UK retail operating profit fell 1.2% to £56.9 million while European retail and core telephone betting operations also suffered losses.

In addition, Ladbrokes has agreed a deal in relation to an early determination of amounts due it under a marketing services agreement with Playtech date March 2013.

The deal, which was agreed ahead of the Coral merger, will see Playtech receive £75 million, of which £40 million will be satisfied by issued shares and £35 million in cash. Should the Gala Coral deal not go ahead, the existing agreement will continue in its current form.

Ladbrokes and Coral tried to merge before. In 1998 that planned deal was squashed by Peter Mandelson, the trade and industry minister at the time, on the grounds that it would dominate the industry. Yet at that time the biggest threat to Ladbrokes and Coral did not even exist. The rationale behind this merger is to create a company that will stand a better chance of competing with online giants like Betfair and Bet365.

The deal comes just over a week after online bookmaker 888 Holdings won a takeover battle with GVC Holdings for rival in a cash and shares deal valued at about £898m.

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