Market relieved by provisional CMA Ladbrokes-Coral findings

Shares in Ladbrokes were surging in morning trading.

Before markets opened, the CMA released its provisional findings which said it has identified potential competition concerns in hundreds of local areas.

The authority said that in order to resolve the concerns, 350 to 400 shops may need to be sold for the merger to be conditionally cleared - if the provisional findings were confirmed in the final report.

Ladbrokes and Gala Coral Group - the second and third largest bookmakers in the UK by number of outlets - have 2,231 and 1,850 betting shops in the UK respectively.

“The group of independent panel members investigating the merger has looked in detail at the large number of areas where Ladbrokes and Coral shops compete,” the authority said in a statement.

“In a summary of its provisional findings, the group has identified 659 local areas where it provisionally found that the merger may be expected to result in a substantial loss of competition, which could lead to a worsening of the offer made to customers at both a local and national level.”

Along with the provisional findings, the panel published a notice of possible remedies, asking for views on whether divestiture of betting shops in those areas would be a suitable remedy.

“It also notes that, as many of the problematic areas overlap, divestiture of a betting shop in one local area may also remedy the concerns in other areas,” the CMA added.

The notice also states that the CMA will likely require any divestiture to be “substantially completed” before the merger could go ahead.

Inquiry chair Martin Cave said that, although online betting has grown substantially in recent years, the evidence seen by the panel confirms that a large number of customers still choose to bet in shops - and many would continue to do so after the merger.

“For these customers, competition comes from the choice of shops in their local area and it’s they who could lose out from any reduction of competition and choice,” Cave explained.

He said discounts and offers of free bets to individual customers are ways betting shops respond to local competition which could be threatened by the merger.

“We’re also concerned that such a widespread potential reduction in competition at the local level could worsen those elements that are set nationally such as odds and betting limits,” Cave added.

Other than the competition issues in local areas, the authority said it has not found issues that may be expected to arise from the merger in relation to the other parts of Ladbrokes and Gala Coral.

At the same time, the CMA extended the deadline for its final report by eight weeks to 19 August 2016 as a result of the investigation’s newfound complexity involving all of the local areas, though it is still aiming to publish it by the end of July.

Market breathes sigh of relief

The market appeared relieved after the provisional findings were released, with Ladbrokes shares up 8.62% at 1225 BST.

Analysts said investors were expecting a much higher number of sales required - so selling 350 to 400 might not be so painful for the two companies.

“Ladbrokes [and] Coral will only need to sell around 350 to 400 betting shops - much less than feared - if the merger is to be conditionally cleared,” said independent retail analyst Nick Bubb.