After much speculation, it has been confirmed at the start of December that GVC Holdings is back on the acquisition trail, this time with Ladbrokes Coral as its target. In response Ladbrokes Coral’s share price leapt 34%, from 135p to 181p, as analysts looked at the prospects of a huge rationalisation programme that would yield up to GB£ 100 million in “synergy savings”.

I wonder what the brand names will be for the new company, if the deal goes ahead? Will the heritage of the Ladbrokes name be retained?  Maybe the Coral name will be transferred to all the shops or vice versa.  What will happen to Bwin, will it become Ladwin or Corwin? Or will these super brands have to retain their own identities?  

More importantly, this new conglomerate of gambling companies will charge into the FTSE 100 index.  Gambling companies, however, do not have a good record in the FTSE 100. William Hill, for example, has been promoted and relegated from the blue-chip index on a couple of occasions since it floated on the stockmarket.

Back in 2005 Partygaming was also a member of the FTSE 100 but soon dropped out after UIGEA in 2006. Partygaming might now return to the elite list but only as a brand in a much larger conglomerate.

Ladbrokes, too, has been there before under the management of Cyril Stein.  At one point it was the 28th largest company in the UK. How times have changed.

A company ranking in the FTSE is a good indicator of how the market measures the performance of that company relative to the market, and thus the economy. HSBC has held pole position for some time.

The combined forces of Ladbrokes Coral and GVC Holdings will have market capitalisation on current trading of GB£ 6.31 billion, placing it about 72nd in the index.  The new company, whatever its name, could possibly sit between DCC, a support services company, and Barratt Developments, the housebuilder.

Companies trading around that ranking in the FTSE 100 are: RSA (sector: insurance; profit before tax: GB£ 100m); Barratt (builder; GB£ 765m) DCC (services; GB£ 248m) Next (retail; GB£ 790m). These companies have a mean average profit before tax of GB£ 476 million.

Based on the 2016 accounts Ladbrokes Coral lost GB£ 213 million with the costs of the merger but came out in front in H1 2017 with a profit at GB£ 23m. In 2016 GVC Holdings lost GB£ 139m, again subject to the costs of acquiring BwinParty. The loss was reduced in H1 2017 to GB£ 6.6 million.

Will the new company be able to produce a profit in the region of GB£ 250m in order maintain a market capitalisation of £6.31 billion and a coveted FTSE place? If so, when? Paddy Power Betfair plc is almost there producing a profit before tax of GB£ 102m at the half way stage of 2017.

By Warwick Bartlett

Data from Financial Times, company accounts

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