Ladbrokes and the Gala Coral Group announced earlier this week that they were holding talks to complete a merger and create a gambling powerhouse in the United Kingdom. Ladbrokes owns more than 2,200 shops and the Coral Goup has more than 1,800 shops in the United Kingdom. A merger would result in a company that owns more than 4,000 shops out of a possible 9,000 shops in the United Kingdom, giving the newly formed establishment an ownership of more than 40% of the UK gambling market.
This would mean that the UK gambling market would be solely dominated by Ladbrokes and William Hill, making it extremely difficult for some of the smaller establishments to compete and survive. The Competition and Markets Authority (CMA) in the United Kingdom will be paying a lot of attention to the proposed merger as this is not the first time that Ladbrokes and the Coral Group have tried to work out a merger.
The two companies tried to work out a merger back in 1998 after Ladbrokes made an offer to buy the Coral Group. However, Peter Mandelson who was the trade and industry secretary during that period of time blocked the merger on the basis that it would not be in the best interests of the UK gambling market to have a powerhouse dominating a majority of the market. Mandelson is no longer the trade and industry secretary but the proposed merger could once again be blocked for the same reason.
Ladbrokes CEO Jim Mullen spoke about the possible merger and said that it
could create a combined business with significant scale and has the potential to generate substantial cost synergies, creating value for both companies’ shareholders
. Mullen also mentioned that Ladbroke’s board of directors
has not yet concluded whether a transaction is strategically attractive and can be delivered to shareholders on appropriate terms
Ladbrokes and the Coral Group might consider selling some of their shops in order to ensure that the merger gets approved. By selling some of their shops, they will reduce their dominance over the UK market and might be able to convince the CMA to approve the merger.
Ladbrokes and Coral Goup employees have serious concerns over their job security as they believe that such a deal could result in closure of shops and a reduction in staff in a bid to cut costs.
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