London-listed GVC Holdings has confirmed that it is in detailed discussions with Ladbrokes Coral regarding a possible combination of the two businesses.
Ladbrokes Coral has received a non-binding proposal from GVC regarding a possible offer for the entire issued and to be issued share capital of the company.
Under the terms of the offer, Ladbrokes Coral shareholders would be entitled to 32.7p in cash and 0.141 ordinary GVC shares for each Ladbrokes Coral share, and a potential further value of up to 42.8p structured as a contingent value right (CVR).
The value of the CVR, which would be satisfied by the issue of loan notes by GVC, will be determined by the outcome of the UK’s ongoing Triennial Review relating to the regulation of Category B2 fixed-odds betting terminals (FOBTs) and its estimated impact on the run-rate profitability of Ladbrokes Coral's UK business.
Based on the respective share prices of Ladbrokes Coral (135.70p) and GVC (909.00p) at the close of business Wednesday, the offer values Ladbrokes Coral at 160.9p per share, equating to a total equity value of £3.1bn.
Including the additional CVR of up to 42.8p per share, this could make the deal worth up to £3.9bn.
The proposed offer is expected to include a mix and match facility allowing Ladbrokes Coral shareholders the opportunity to elect to receive more cash or more new ordinary shares in GVC, subject to offsetting elections made by other Ladbrokes Coral shareholders. The CVR would not be included in the mix and match facility.
Based on the terms laid out, both parties anticipate that Ladbrokes Coral shareholders would hold a stake of around 46.5 per cent in the enlarged business, with GVC shareholders holding 53.5 per cent.
The determination of the senior management positions are to be finalised over the coming weeks, but both parties have agreed that GVC’s Kenneth Alexander will be the CEO of the enlarged group following completion.
“The boards believe that a transaction has the potential to create material shareholder value and that there is a compelling strategic rationale for the possible offer,” said Ladbrokes Coral and GVC in a joint statement. “The enlarged group would be an online-led globally positioned betting and gaming business that would benefit from a multi-brand, multi-channel strategy applied across some of the strongest brands in the sector.”
Both companies believe that the group would be geographically diversified with a large portfolio of businesses across both regulated and developing markets.
The transaction will also enhance the enlarged group's position in a number of the world's largest regulated iGaming markets including the UK, Italy and Australia, significantly increasing GVC's current share of revenues from locally regulated or taxed markets to more than 90 per cent.
“The enlarged group would have strong growth prospects with momentum in its online businesses, potential for material synergies including the use of leading proprietary technology, and the opportunity to select the best of both people and operations,” said the companies.
Shares in GVC Holdings plc (LSE:GVC) were trading up marginally by 0.44 per cent at 909.00p per share in London earlier Thursday, while shares in Ladbrokes Coral plc (LSE:LCL) were also up by 0.44 per cent at 135.70p.