Why the GVC Holdings plc/Ladbrokes Coral Group plc merger makes sense

Shares in Ladbrokes Coral were up by more than a quarter in early trading despite uncertainty over the government’s consultation over fixed-odds betting terminals

GVC Holdings Plc is in advanced talks to acquire United Kingdom bookmaker Ladbrokes Coral Group Plc for as much as 3.9 billion pounds ($5.2 billion), as gambling companies seek greater scale in a business that's shifting online.

Shares in both GVC Holdings (LSE: GVC) and Ladbrokes Coral (LSE: LCL) have jumped in early deals after it was announced this morning that GVC had approached its peer proposing yet another deal.

Keith Alexander, chief executive of GVC, would be expected to lead the combined group.

"The boards believe that a transaction has the potential to create material shareholder value and that there is a compelling strategic rationale for the possible offer", the two said in the statement.

"The enlarged group would be an online-led globally positioned betting and gaming business that would benefit from a multi-brand, multi-channel strategy applied across some of the strongest brands in the sector", the companies said.

The talks come after two previous attempts at a deal between the pair, but the latest discussions broke down in the summer over price and ahead of the Government's gambling review.

A combination of GVC, which owns online gambling platforms including Partypoker and Sportingbet, and betting-shop operator Ladbrokes Coral could spark even more consolidation in the sector.

The final price will depend on the outcome of a government review into fixed-odds betting terminals (FOBTs).

A potential deal would give Ladbrokes Coral shareholders around 46.5 per cent of the combined group.

GVC said it expected "material synergies" from a merger with Ladbrokes, which it would lay out in any forthcoming firm offer.

Now, as the United Kingdom government's ongoing regulatory review continues to cast a shadow over the gambling sector, it would appear that Ladbrokes' management is keen to get a deal done.

The companies added that a merger would enhance the enlarged group's position in a number of regulated online gaming markets, including the UK, Italy and Australia, and would boost GVC's current share of revenues from locally regulated and taxed markets to more than 90%.

Following a £2.3 billion merger a year ago between Ladbrokes and Coral, the firm became the UK's biggest High Street bookmaker. GVC shareholders would be entitled to the rest.

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