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GVC's bid for Ladbrokes Coral marks third M&A this week as Brexit uncertainty weighs

A slew of M&A announcements this week comes on the back of a slowdown in consumer spending since the Brexit vote
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Difficult trading conditions has led to an increase in the consolidation of UK industries

GVC Holdings PLC’s £3.9bn bid to buy Ladbrokes Coral Group PLC (LON:LCL) marks the third major merger announcement in three days as Brexit begins to bite.

The companies said in a statement on Thursday that they are in “detailed discussions” about a possible merger to create an online global betting giant.

The news came a day after Hammerson PLC’s (LON:HMSO) said it had offered £3.4bn to purchase rival retail real estate investment trust (REIT) Intu Properties.

The third takeover announcement was from UK movie theatre operator Cineworld Group plc (LON:CINE) on Tuesday when it revealed that it had agreed a deal to buy US peer Regal Entertainment Group (NYSE:RGC) for US$3.5bn.

The proposed mergers are in response to “tougher times on the UK high street”, according to Jasper Lawler, head of research at London Capital Group.

Since the UK voted to leave the European Union, consumer confidence has taken a hit as disposable incomes bear the brunt of higher inflation.

Regulatory uncertainty for GVC and Ladbrokes

GVC and Ladbrokes are also facing political uncertainty as the industry awaits the government’s review into fixed-odds betting terminals over concerns the machines are too addictive for problem gamblers.

Many analysts had expected GVC to hold off on making its third attempt for a Ladbrokes Coral acquisition until the results of the FOTB review were known.

For this reason GVC has held back a chunk of its final payout until the results have been revealed. The final price could be as low as £3.1bn depending on the outcome.

Tighter regulation aside, high street retail is in a long-term decline as people shift their shopping and gambling online, Lawler said.

“The latest inflation-induced squeeze on the UK high street looks like it has forced Ladbrokes to face the music,” he said.

“We think the merger offers GVC some strength and depth while giving Ladbrokes the opportunity at international and online expansion.”

Hammerson's bid for Intu seen as opportunistic 

Hammerson’s swoop for fellow UK shopping centre owner Intu was seen as an opportunistic bid by some analysts.

Intu’s share prices have fallen about 25% in the year to date as it tackles a slowdown in consumer spending.

Across the industry as a whole, there are fears Brexit will further hurt consumer confidence and that bricks-and-mortar retailers could suffer at the hands of Amazon and other online rivals.

Cineworld enters US amid tough UK market conditions

As British consumers tighten their purse strings, Cineworld is looking to enter the US with the acquisition of Regal. The deal will be part-funded by a £1.7bn rights issue and debt.

In November, Cineworld revealed box office revenue growth in the UK had eased over the past 10 months due to weaker consumer spending and tough competition from online video streaming rivals.

“The threat posed by video-on-demand services such as those delivered by Netflix cannot be taken lightly but this move looks capable of supplementing existing growth momentum,” Russ Mould, investment director at AJ Bell, said of Cineworld’s planned takeover. 

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Newswire
May 05 2015

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