Shares in Ladbrokes Coral (LCL) dip 1.9% to 123.2p on rumours the newly-enlarged business wants to buy Australian rival Tabcorp.
Weekend papers speculated a bid was on the cards; neither company has issued a statement on the reports.
Investment bank Berenberg calculates the two companies have the same equity value, in the range of £2.3bn. However, Ladbrokes Coral has twice the amount of debt as Tabcorp at £1.2bn.
Berenberg believes the deal would make strategic sense. It highlights five key reasons:
- The deal would limit Ladbrokes Coral’s exposure to the UK retail business (c55% of total revenues at present, which would decrease to c35% after the deal), which is currently under potential regulatory pressure.
- It would reinforce Ladbrokes Coral’s positioning in Australia, where digital operations are strong but subscale for the moment, in the view of Berenberg.
- ‘Despite some potential regulatory headwinds, the Australian market is still growing in the double digits, so the deal would help Ladbrokes Coral’s growth profile,’ adds the bank.
- Cost and revenue synergies, mostly in Australia, albeit difficult to quantify at this stage.
- Berenberg believes this could be the best opportunity for Ladbrokes Coral to diversify outside the UK.
If the speculation is correct, Ladbrokes Coral would be walking into an already-complicated situation. Tabcorp is presently in merger talks with Tatts which is being scrutinised by the Australian Competition Authorities.
Berenberg isn’t sure Tabcorp shareholders would want to own shares in Ladbrokes Coral, assuming the deal is part financed by equity, given it would provide exposure to the UK retail betting markets and its associated regulatory pressures.
