LONDON (Alliance News) - A major shareholder in Ladbrokes PLC has spoken out against the bookmaker's proposed merger with Gala Coral Group Ltd, saying it is "the wrong deal".
In a letter to fellow Ladbrokes shareholders, Irish businessman Dermot Desmond argued that the proposed merger will lead to the "death" of Ladbrokes as an independent company, urging shareholders to vote against the deal at the company's annual general meeting on November 24.
Desmond, who is thought to have a stake of around 2.0% in the bookmaker, acknowledged that Ladbrokes has, unlike Coral, "failed to migrate its customers online" and that it needs a new management team in order to achieve this.
"However giving away half your company and taking on over GBP800.0 million of debt is a very expensive way to recruit a quality management team," he wrote.
Desmond blamed Chairman Peter Erskine and Chairman Designate John Kelly for leading Ladbrokes "down the disastrous path to a deal that is effectively the death of Ladbrokes as an independent company".
He noted that if the deal goes through, Coral shareholders will receive access to liquidity for their shares and "significant relief" from a GBP2.2 billion debt burden, while Ladbrokes shareholders have suffered a 66% reduction in their dividends and will be "saddled with gearing multiples 50% higher than the current level".
"In addition Coral shareholders will benefit from the transition of the Ladbrokes clients to the higher value online space whereas this has already been largely accomplished for the Coral
customer base," Desmond said.
"The real winners in this transaction are the Coral shareholders. Make no mistake ? this is
a zero premium acquisition of Ladbrokes by Coral," he added.
The businessman also said Ladbrokes will suffer from lower margins due to a decline in margins at Coral, and noted that as neither company has developed their core technology platforms, the merger will do nothing to address Ladbrokes' weakness in this area.
Desmond also expressed concerns over the UK Competition and Markets Authority's review into the merger, saying that the likely disposal of between 400 and 1,000 shops it will have to make will occur at a discount to the price Ladbrokes will be paying for those shops.
"Ladbrokes has failed to quantify the synergies or the potential cost of any competition
review," he wrote.
"The lost profits from any such disposed shops may outweigh the unspecified synergies which the proposed transaction is hoped to yield. In respect of synergies, the commitment to maintain both the Coral and Ladbrokes brands and two trading teams would suggest that material synergies will be difficult to deliver," he added.
Since the announcement of the proposed deal in July, the Ladbrokes share price has fallen 16%, wiping out around GBP200 million in shareholder value "indicating the market's view
on the proposed transaction," according to Desmond.
"Despite its troubles, I believe Ladbrokes has the potential to be a great company once again and to become a major force globally in online gaming ? a sector that is growing fast and where well managed companies are thriving," the businessman wrote.
Desmond said shareholders have "passively accepted all the bad news and the loss of value
heaped upon them by the Ladbrokes board and management over the last 10 years," urging them to join him in his fight against the merger.
"This is not a good deal for Ladbrokes shareholders. Shareholders should vote against it at the
general meeting on November 24 and insist that an independent committee of the board, with
appropriate advice from an independent investment bank, review all the strategic options open
to Ladbrokes in a very active merger and acquisition market," he concluded.
Ladbrokes and Gala Coral agreed the merger in July amid a flurry of merger and acquisition activity in the UK's bookmaking industry. If the deal goes ahead it will create a company with a market capitalisation of around GBP2.1 billion and the largest bookie retail estate in the UK.
Shares in Ladbrokes were trading down 0.4% at 108.90 pence Wednesday afternoon.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
Copyright 2015 Alliance News Limited. All Rights Reserved.
