Ladbrokes Coral Group plc - Announces talks with GVC over a possible acquisition of group by GVC

Davy Research
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The proposed merger of GVC and Ladbrokes Coral (LCL) makes sense strategically. It diversifies both, it creates an online and retail gaming company of enormous scale and should lead to material synergies. The group has said the deal would be EPS accretive in year one. For LCL shareholders, the deal would represent a substantial premium (30-40%) on last night’s close.The contingent value right (CVR) aspect of the proposed offer protects LCL shareholders in the event of a better-than-expected regulatory review outcome. The one possible question with respect to the deal is the relative share of the enlarged group. The proposed offer would give LCL shareholders a 46.5% share of the combined entity with GVC shareholders getting a 53.5% share. While the regulatory risk attached to LCL is well understood by the market, we wonder whether the same can be said for GVC. The premium will very likely mean that LCL holders will be happy to support this deal but they should just be mindful of paying a high multiple for higher risk earnings streams. Overall though, a smart deal for both sides.