Ladbrokes Coral’s bosses will try to sound cheerful about the prospect of being taken over by GVC Holdings, the company behind Sportingbet and Foxy Bingo. But, on the long view, this deal would be a corporate humiliation.
Ladbrokes is one of the oldest names in British bookmaking and still collects the largest revenues. It traces its roots to 1886 and, under chairman Cyril Stein, boomed after the legalisation of betting shops in 1961. When Stein retired in 1993, the company, with a collection of Hilton hotels at a time, was worth £2bn. Now, a quarter of century later and with Coral on board, it is in discussions to surrender for just £3.1bn, plus a potential £800m kicker, to an Isle of Man-based company that was worth only £100m five years ago. David, after bulking up with a few deals, is bidding for Goliath.
There’s no point blaming the current crop of Ladbrokes’ managers. It was their predecessors who were late to the starting gate in the digital Derby. Ladbrokes flapped around ineffectually trying to build in-house technology, lost ground online and has only recently picked up the pace.
Other failures included loading up with so much debt in the pre-financial crash years that a £286m rights issue was required when recession arrived in 2009. Were Ladbrokes directors luxuriating in the easy money from their electronic roulette wheels, or were they just poor at executing online? Probably both.
Last year’s merger with Coral gave Ladbrokes greater size, but only increased the appeal for the acquisitive GVC. Thursday’s outline deal is the fruit of the third set of talks. From Ladbrokes’ point of view, the best that can be said is that the proposed terms are better than those previously rumoured. The basic price is 161p versus 140p. As importantly, GVC last month agreed a deal to sell its business in Turkey, where online gambling is illegal. That allowed it to present itself to Ladbrokes as more of a regular company with operations in regulated markets.
That points to another aspect of the shift in corporate power in the internet era: newcomers were happy to shoulder the risk of operating in so-called “grey” markets, but the old guard were understandably shy. In the end, the upstarts got the better of the gamble. European countries have generally dealt with the rise of online operators by taxing and regulating. After exiting Turkey, GVC’s regulated and “regulating” revenues will be 75% of its total. Buying Ladbrokes, which is virtually 100% regulated, would make the regulatory risks almost minimal.
GVC is accepting a different type of risk by getting into physical betting shops for the first time but it has an odd but neat solution to the government’s review of the machines. Ladbrokes shareholders will get “contingent value rights” that will pay out between zero and 42.8p depending on how far machine stakes are reduced. Both sets of shareholders seem happy – Ladbrokes’ shares rose 29%, GVC’s 8% – so the deal looks to be on.
To spare its corporate blushes, Ladbrokes could say that the offer is mostly in shares and its shareholders will end up in a company that will be one of the world’s largest gambling groups. Given past upsets, that’s not the worst outcome. Yet it could have been better. Stein, who died in 2011, built Ladbrokes by opening shops harder and faster than his rivals. Then the internet changed the game.
Bitcoin bubble: back to the future
Sir Howard Davis is right. As the Bitcoin mania becomes truly silly, it would be helpful to hear central bankers and regulators shouting more loudly about risks to investors. If officials have been fearful of coming across as luddites, it’s time to wake up. Citizens also want to know that the back door of the financial system hasn’t been left open for fraudsters and money-launderers.
And do regulators really approve of plans by two Chicago exchanges to make it easier to speculate on Bitcoin? It’s hard to believe they do. Regulators pushed to make financial markets more transparent after the banking crisis. The impending launch of Bitcoin futures would seem to run in the opposite direction.
An old-fashioned price crash would cool the market faster than anything regulators can say, of course. But the timing of that event is impossible to predict. The Bitcoin bubble has become a global phenomenon, and comparisons with past manias may be irrelevant.
Keep it together
A US hedge fund called Sachem Head has taken a 3.4% stake in Whitbread, provoking muttering that it may lobby to break up the Costa Coffee and Premier Inn group. Sachem hasn’t said a thing, note, but the Whitbread chief executive, Alison Brittain, should be prepared to apply common sense. Starbucks may trade on a fancy stock market rating, but that doesn’t mean an independent Costa would. There are only two moving parts at Whitbread: it shouldn’t be hard for investors to value the company in its current form.