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NEWS 26 October 2016

Does BoyleSports have a justified grievance over Ladbrokes-Coral shop sales?

By Tom Lewis
Back in July, the UK Competition and Markets Authority (CMA) ruled that in order for Ladbrokes and Gala Coral to complete their proposed £2.3bn merger, the pair would be required to sell between 350 and 400 shops, the CMA having identified 642 local areas where competition stood to be substantially lessened as a result of the merger.

This ruling was entirely as expected, given that the merged entity, sans shop sales, would have held a 45% share of the retail market.

Roll on October, and the merger looks set to be completed, with the CMA having granted final approval.

322 shops are to be sold to Betfred for a cash consideration of £55m, while a further 37 shops will go the way of Stan James for a comparatively paltry £500,000.

BoyleSports “communicated its concerns” to the CMA soon after: “BoyleSport’s, Irelands largest bookmaker, is disappointed Ladbrokes and Gala Coral have decided to sell their 359 shops to existing UK retail competitors.

“The BoyleSports bid was higher than the reported sale price, was fully-funded, was cognisant of the changing political and regulatory UK landscape and could have been completed within two weeks of acceptance.”

The crux of BoyleSports’ grievance appears to be that its proposed financial outlay on the shops in question dwarfed the combined total to be paid by Betfred and Stan James. The figure was a reported €118m, equivalent to around £105m, a sum that becomes increasingly attractive as sterling continues to tank.

The operator continued in a statement: “BoyleSports believes the decision not to allow a challenger brand onto the UK high street is bad for retail consumers who would have benefitted from the keen pricing and excellent service already available to our existing Irish retail customers and to online customers in Ireland and the UK.”

To compare BoyleSports with Betfred and Stan James, the Irish operator has more than 200 shops in the Republic of Ireland, but has no high street presence in the UK. Betfred can lay claim to nearly 1400 of what it refers to as “entertainment destinations”, while Stan James runs over 70 shops in England, alongside a single store in Glasgow.

The website of the CMA details its aims: “We work to promote competition for the benefit of consumers, both within and outside the UK.” The aspect of having options and a choice on who to spend your money with is a sure-fire tenet of consumer welfare, while the failure of BoyleSport’s bid means the high streets of the UK will not see the entrance of a new player in the retail gambling space.

In this sense, it appears justified for BoyleSports to at least have raised a concern with the body. However, the rejection of its bid by Ladbrokes and Gala Coral is something the CMA is unlikely to address outside of an acknowledging statement, while its recent granting of final approval to the merger leaves any rowing back an unlikely prospect.

As Lorien Pilling, Director at Global Betting and Gaming Consultants, points out: “It is entirely understandable that BoyleSports is disappointed that the deal was not concluded in its favour. But, the ownership of 350 betting shops (out of a total estate of some 8,900 shops) does not determine whether or not consumers are getting a good service from the UK’s betting shops.

“Most betting shops, regardless of brand, offer a very similar set of products and prices in any case, precisely because the sector is so competitive and all operators claim to differentiate themselves through their superior customer service."

Ladbrokes responded shortly after news broke of BoyleSport’s disappointment: “Although they are well within their rights to express their views with the CMA, we are comfortable with our decision based on the bids received in the process.

“It was critical for us to achieve levels of certainty within a suitable timescale to enable us to move towards completion and realise the outstanding opportunities that this merger provides.”

Coral issued a statement hitting similar notes, saying: “Certainty and timetable were always our priority to enable us to focus on realising our merger with Ladbrokes which will create very substantial value for shareholders.”

Regarding the greater financial heft of BoyleSport’s bid, these statements in the wake of BoyleSport’s expression of disappointment to the CMA underline the almost-merged-but-not-quite-yet pair’s reasoning, that certainty and timetable were the paramount factors. Avoiding any further speed bumps on the road to their merger has been afforded greater importance than straightforward monetary gain.

BoyleSport’s claim, that its bid was fully funded and effectively ready to go, does not prevent Ladbrokes and Gala Corals' justification from being a reasonable one.

Moreover, Ladbrokes announced revenue off £661.8m for H1, while Gala Coral’s net revenue for Q3 was £264m. With neither missing an opportunity to speak on the opportunities that the merger will bring, it is fair to say that an extra £50m, while a long way away from being an inconsequential sum, may not have been particularly important to them as their merger edges towards completion.

As Lorien Pilling states: “For Ladbrokes and Coral the merger is the priority. It is valued at around £2.3bn and in that context the sale of the shops, be it for £55m or £100m, is a small part of the process in financial terms but crucial in regulatory terms. This explains why they have made ‘certainty’ the priority over a higher bid.

“Either way, the deal shows how much the value of a betting shop has declined over the last few decades.”
RELATED TAGS: Mergers & Acquisitions
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