Is the Ladbrokes/Gala Merger a Mistake?

ladbrokes-gala-coral-logoLabrokes Shareholder, Dermot Desmond, has come out with “scathing comments” about the company's recent merger deal with the Gala Coral Group. His central criticisms revolve around the fact that, after merging his betting exchange Betdaq with Ladbrokes in 2013 for €30 million, he has seen the board “passively accept” all the misfortune that has befallen the company. He even claims that the executives have led Ladbrokes down a “disastrous path”, killing its identity as an independent company.

So is this merge is a mistake? Or are these comments a mere overreaction?

A Rift in the Deal

Earlier this year, gambling giants Ladbrokes and Gala Coral agreed on a merge to become Ladbrokes Coral, bringing around 2,000 shops together from both sides to eclipse rivals like William Hill. Along with this, the company is now on the stock exchange. Despite this seemingly smart move, Desmond has misgivings about the merge.

Desmond merged his betting shop with Ladbrokes in 2013.

Desmond merged his betting shop with Ladbrokes in 2013.

The summation of these misgivings are as follows:

  • Ladbrokes chairman Peter Erskine and senior non-executive director and board member John Kelly  have made a mistake and stomped out the company's independence.
  • A potential enquiry by the Competition and Mergers Authority could hold back any completion of the merge until 2016 which means Ladbrokes would have to dispose of 400-1,000 betting shops which would give competitors such as William Hill, BetFred and Paddy Power the edge.
  • A lack of “proprietary technology has been a significant driver of Ladbrokes’ underperformance versus peers and the merger with Coral, which is also largely reliant on third party technology, does nothing to address this weakness”.

So how do these issues affect online gambling?

Should it matter to the gambling commuter if several betting shops are closed down so long as they can continue betting via their tablet? Well, yes, it should. The shops owned by Ladbrokes are what brings in its capitol and with no capitol there is no business, online or otherwise.

However, it's my belief that any profit that'll be lost from these close-downs will soon be recovered since both Ladbrokes and Gala are large enough businesses — two of the largest in the industry, in fact. Being on the stock exchange will also help it produce a larger turnover as more shares will equal more income.

The third point made by Desmond regarding third party technologies might also affect online players but only slightly. Many online casinos rely on third party technologies all the time and few problems seem to exist there. Though it may not fix any problems unique to Ladbrokes, it could hardly be made the point that the merge is a bad idea.

A Sense of Pride

What Desmond seems to be focusing on here is pride in the business's unique selling point which really isn't all that unique. Yes, relying on third parties creates another liability but third-party management frees up any spare time that the board of executives may need to develop better promotional deals for their consumers which equates to better profit margins.

Merger deal was made back in July.

Merger deal was made back in July.

In short, these comments may be genuine concerns but they are a tad unfounded. Desmond's primary focus is the operation of the business itself, not its customer base which is really all that matters. He might not like the way the company is being run but Ladbrokes has had nothing but success upon success since its inception. They must be doing something right.

With regards to this merge, any expansion would be welcome, especially for online players as relying on third-party technologies would equate to more games being developed and more variety to chose from.


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