Ladbrokes and Gala Coral confirmed Friday that they have agreed a proposed recommended merger to form Ladbrokes Coral plc, with the enlarged £2.3bn entity looking to become a more effective competitor in the gambling market.

The merger will combine Ladbrokes online and land-based business with certain divisions of Gala Coral including its Coral Retail, Eurobet Retail and Gala Coral online businesses (the Coral Group).

The new entity will generate annual net revenue of £2.1bn, with EBITDA of £392m, excluding cost synergies of at least £65m, which will be delivered in the second post-merger year.

The enlarged company will have a retail estate of around 4,000 shops, making it the largest in the UK with almost double the number of its closest competitor, William Hill, though It has confirmed that it expects to have to sell of a number of outlets to satisfy Competition and Markets Authority requirements.

It will retain its portfolio of brands, allowing for effective cross-brand marketing across a larger customer base, helping accelerate the growth of its online business. The combined business will generate around 20 per cent of revenue from online operations, and will leverage omni-channel technology such as Coral Connect to lower customer acquisition costs.

“We also intend to pool our digital innovation teams in order to strengthen our product pipelines,” the operators said. “We will continue to focus on delivering innovation across our multiple brands, with the view to enhancing returns.”

Ladbrokes Coral will also have a strong presence in regulated markets, with Gala Coral’s Eurobet Italia offering complementing Ladbrokes’ online and retail operations in Belgium, Spain and Australia. International operations will initially comprise around 11 per cent of the merged company’s revenue.

Upon completion of the merger, the company’s executive team will be led by Jim Mullen, current Ladbrokes chief executive, who becomes CEO of the enlarged entity. Joining him will be Gala Coral CEO Carl Leaver, who will serve as executive deputy chairman for 12 months, responsible for delivering synergies. Gala Coral chief financial officer Paul Bowtell becomes CFO of the larger organisation and Ladbrokes senior independent non-executive director John Kelly becomes non-executive chairman.

Gala Coral chief operating officer Andy Hornby, former CEO of HBOS, has also been confirmed as chief operating officer of Ladbrokes Coral, but will not have a seat on the board.

In addition, the board of the new operator will include one non-executive director from the current Ladbrokes board, while current Gala Coral chairman Rob Templeman will also serve as a non-executive director. Three further independent non-executive directors will be selected in due course.

While admitting that the combination of similar job functions “will necessarily lead to some operational restructuring” the size and strength of the new company will “offer attractive career prospects for its employees,” Ladbrokes said.

“This is a major strategic step for Ladbrokes which firmly accelerates our strategy to improve the customers' experience and build recreational scale,” outgoing Ladbrokes chairman Peter Erskine said of the deal. “Ladbrokes and Coral are two highly complementary businesses, with rich heritage and brand presence across the UK and internationally.”

“Together, we will create a leading betting and gaming business combining strong brands with an attractive multi-channel offering and an extensive national and international coverage,” he continued. “The transaction will provide an attractive opportunity to generate considerable value for both sets of shareholders, through significant operating synergies and a strong cash flow profile.”

Gala Coral chair Rob Templeman added: “Today's announcement is testimony to the track record and achievements of the Gala Coral team in delivering a significant transformation of the business over the past four years. This strategic combination is a natural fit and will offer further opportunities for growth. Coral Group's online strength and high street presence will complement Ladbrokes' established brand and footprint in the UK and internationally.

“Together, the two businesses will have a strong digital presence with market leading technology, innovation and access to significant resources to drive continued growth and deliver enhanced returns for all shareholders,” he said.

Gala Coral shareholders will receive new ordinary shares issued by Ladbrokes, giving them a 48.25 per cent stake of the enlarged share capital of the new business, while Ladbrokes shareholders will own a 51.75 per cent stake in the business.

The Coral Group, comprising Gala Coral’s online business, will be delivered with net debt of £865m, with the combined group’s debt standing at £1.3bn. It is expected to have around leverage at completion of around 3x net debt to EBITDA. This sum is expected to be reduced to less than 2.5x within 12 to 18 months after completion of the deal, reflecting the strong cash generation of Ladbrokes Coral and substantial synergies.

With both companies powered by Playtech technology, the solutions provider has agreed to amend its marketing services agreement with Ladbrokes in order to help the merged company achieve integration and realise synergies. The pair have agreed to accelerate the determination of amounts due to Playtech under the agreement, settling on a fee of £75m, with £40m to be satisfied through the issue of shares in Ladbrokes Coral, with a further £35m to be paid in cash upon delivery of key milestones, and within 42 months of the merger’s completion.

Playtech will also take up 22.9 per cent of a new 9.99 per cent equity placing announced by Ladbrokes today.

Shares in Ladbrokes plc (Co.Data) (LSE:LAD) will begin trading at 128.00 pence per share in London this morning.

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