Shares in bothGVC Holdings (LSE:GVC) and Ladbrokes Coral (LSE: LCL) have jumped in early deals after it was announced this morning that GVChad approached its peer proposing yet another deal.
Ladbrokes had previously been in negotiations with GVC during the summer. However, on that occasion, discussions collapsed because of disagreements over the value of the companies.
Now, as theUK governments 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.
According to todays press release, Ladbrokes stockholders are likely to be offered cash and shares equal to 160.9p a share, plus an uplift worth up to 42.8p a share depending on the outcome of the UK governments ongoing regulatory review.
A great deal for all parties
A merger between Ladbrokes, which has a sizeable high-street presence and GVC, which is predominatelyonline-based, is in the best interest of all parties.
GVChas been building up its online gaming empire for the past decade, but Ladbrokes has struggled in this area and is still heavily reliant on its high street operations. The outlook for these outlets is unclear pending the outcome of the government review of fixed-odds betting terminals. Ladbrokesfixed-odds high stakes machines deliver a majority of its retail revenues.
Part of GVCs offer is conditional on the outcome of the government review. It is offering a fixed price of 160.9p per share plus as much as 42.8p if theres no change to the regulations. This conditional element is calculated on a sliding scale: if the maximum stake is dropped from 100 to 2, shareholders will receive no extra cash. If the maximum stake is cut to only 50 from 100, shareholders are set to receive the maximum distribution.
By combining, the two would be better placed to withstand any changes brought in by the government. The enlarged entity 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.
So the deal will give, Ladbrokes investors access to a globally diversified digitalgaming business whileGVCcan expand onto the UK high street.
The next stage of growth
This merger is just the latest in a string of deals completed by GVC over the past decade. The company has used the cash generated from its leading online operation to expand into other markets with colossal success.
Since 2012 pre-tax profit has exploded from10m to210m (forecast for 2017). At the same time, shares in the firm have produced a total annual return for investors of more than 42% per annum including dividends.
Considering the acquisition record, it looks to me as if this is a great deal for all parties and it should enable the firm to continue to generate market-beating returns for investors for many years to come.
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