GVC closes in on Ladbrokes Coral takeover at third attempt

GVC Holdings is in advanced talks with Ladbrokes Coral about a possible takeover of the bookmaker worth up to £3.9bn depending on the outcome of the government's gaming machines review.

GVC, which is listed on the FTSE 250 with a market cap of under £3bn, said the possible offer would see it offer a mix of cash and shares, plus a further value of up to 42.8p structured as a 'contingent value right' determined by the outcome of the government's triennial review into gaming machines in the bookmaking industry. Based on these terms, GVC shareholders would hold roughly 53.5% and LCL's 46.5% of the enlarged business.

Based on a closing GVC price overnight of 911.5p and 135.65p for Ladbrokes, the offer would values Ladbrokes Coral at £3.1bn or 160.9p per share, with the CVR of up to 42.8p per share potentially taking the total value up to £3.9bn.

The CVR is calculated on a sliding scale based on what maximum stakes are imposed under the triennial review, with £0 worth 0p, £20 worth 30.3p per share and £50 worth 42.8p.

GVC said it expects the deal would results in "material synergies which will create value for both sets of shareholders" and that it will increase earnings per share by a double-digit rate from the first full year post-completion.

For fast-growing GVC, which since making the jump from AIM to the full list last year has grown organically and through acquisitions such as Bwin.Party, this is its third attempt at a tie-up with Ladbrokes, following talks in August and a first tilt last year.

Last month, GVC announced the sale of its Turkish subsidiary, removing a potential obstacle to a deal with Ladbrokes, which had raised this as one sticking point during August's talks.

Shares in Ladbrokes soared 28% to 174.2p in early trading on Thursday, while GVC climbed 8% to 979p.

“GVC got lucky at the third attempt and LCL shareholders can count their winnings," said analyst Neil Wilson at ETX Capital.

"Whilst this deal was always likely, most had thought GVC would wait until the government’s triennial review of fixed odds betting terminals was finished before it would happen."

Wilson suggested that if the triennial review sees the government tightens the rules somewhat but stays short of imposing a £2 stake limit on betting machines, this could see the offer for LCL rise to somewhere in excess of 180p, "which looks a healthy premium given the regulatory overhang".

"The fact the deal can go ahead on this basis suggests that the industry is less fearful of a worst case scenario."

Greg Johnson at broker Shore Capital sees "significant merits" in the tie up, most notably the cost synergies, a more diverse geographic footprint and reduced risk around UK regulation and machines in particular.

"Against this it does bring in some geographic risk in GVC notably around Germany following the exit from Turkey, whilst the cash elements, we estimate worth £600m and £800m (max for the triennial review element), are more the comfortable from the existing balance sheet and future cash generation."

He highlighted that Playtech may see some potential impact on one of its most important licensees, with its stake in Ladbrokes Coral worth close to 80p per share.