CMA To Investigate GVC Holdings / Ladbrokes Coral Group Merger

CMA LogoBack in December I wrote about the proposed merger between GVC Holdings and Ladbrokes Coral Group. Now it has emerged that the Competition and Markets Authority will investigate the merger before it is allowed to go ahead. The idea is that the merger might well result in a ‘lessening of the competition within any market’. In other words, the merger might create a powerful new company that reduces the competitiveness of the gambling industry.

Merger Investigation Might Alter Other Takeovers

The Competition and Markets Authority informed both GVC Holdings and Ladbrokes Coral Group that it was launching an enquiry into the merger at the start of February. The decision is unlikely to have come as a surprise to Ladbrokes in particular, given that their merger with Gala Coral Group was also investigated. The CMA saw several different areas where local competition would be harmed because of the merger, leading them to recommend the sale of between 350 and 400 shops before they’d give the deal their ok.

The interesting thing regarding this deal is that the majority of GVC Holdings businesses are online. They currently own brands such as Foxy Bingo and partypoker. There’s unlikely to be the same sort of issue regarding local businesses coming under threat of a lack of competition, therefore.

Ladbrokes Coral Group and GVC Holdings won’t be the only businesses keeping an eye on what happens next. The likes of Rank, who own Mecca Bingo, the 888 brand and even William Hill are all either looking at being taken over or else considering acquisitions of their own at the moment. If this deal goes ahead then there might well be a number of purchases and other movements within the gambling industry that follow. Whether they will also be looked at by CMA will depend entirely on the circumstances of the deals.

Job Losses Envisioned

Though it’s not in the remit of the CMA to consider whether or not jobs will be lost as a result of any given merger, it certainly appears as if that’s likely to be the case. If the merger were to go ahead it would create the biggest gambling company in the United Kingdom, but as a consequence it’s believed that about 1,600 jobs could be lost.

GVC Holdings, an Isle of Man-based company, has, alongside Ladbrokes, confirmed that around 6% of the workforce would need to be cut after the deal goes through. Given that there are about 26,800 people work for the two companies when combined, that would result in approximately 1,608 jobs being cut. The jobs would be cut from UK-based areas of the companies, though it looks as thought it wouldn’t happen until next year – provided the merger happens at all.

The reason for the job losses is that there’s no need to double-up on certain administrative roles across the two companies. That means that it’s unlikely that staff within the numerous Ladbrokes shops around the country will lose their jobs, but those within marketing, administrative and customer services positions are at risk. Ladbrokes have a head office in London, which would likely close and where possible people would move to GVC’s central base in the same city.

FOBT Review Will Affect Final Price Of Merger

The final price that GVC Holdings will pay for the Ladbrokes Coral Group will depend on the outcome of the government’s current investigation into Fixed Odds Betting Terminals. Should the decision of the Department for Digital, Culture, Media & Sport be to cut the maximum odds used on FOBTs to £2 then the deal will drop from £3.9 billion to around £3.1 billion.

FOBTs provide around half of Ladbrokes’s income, which is part of the reason for the government investigation in the first place. Should the amount of money the bookmakers is able to make be curtailed then GVC will obviously be reluctant to pay full-whack given they’ll be on the receiving end of less profit. That would cause Ladbrokes to reevaluate the dividend that it would pay shareholders, with the current figure rumoured to be in the region of £78 million.