Playtech & Ladbrokes Merger in WorksBy: Rick Balding, Thursday February 10th 2011
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The Telegraph newspaper of the United Kingdom broke the news that the online gaming operator Ladbrokes is examining the possibility of a merger with the online gaming software provider Playtech. If this goes through the merged entity could be worth over £2.2 billion. The newspaper report goes on to state that Ladbrokes has apparently instructed investment banks Greenhill and UBS AG to consider the possibilities and ramifications of this merger. Ladbrokes is currently a consumer-facing business. It operates more than 2,700 betting shops and online gaming portals in several verticals. This merger would add a B2B dimension to its operations by including supply of software to the online betting, casino and poker industries.
The Telegraph does not reveal the source of its information. And as expected at this early stage both Ladbrokes and Playtech spokespersons are not offering any comment on the Telegraph report. All that Ladbrokes spokesman Ciaran O'Brien said was that the company's Chief Executive Officer has been given a clear mandate to grow the company organically, and that is what he is doing. He added that the board was also looking at other opportunities for growth. The Playtech spokesperson did not say anything at all, but Playtech gained 5.6% when this news broke. This was the biggest rise since December 14, 2010.
Both Ladbrokes and Playtech have other irons in the fire. Ladbrokes has been in confirmed merger talks with 888 since December. There are recent reports in the British media that these talks have hit a roadblock over price. The reports say that Ladbrokes made a firm offer in January 2011, which was apparently rejected by 888 as being far below expectations. It is likely that Ladbrokes would not be willing to increase its offer and may prefer to walk away from the discussion table. And this could be the reason that it is opening up a front with Playtech.
If Playtech has to cut a deal with Ladbrokes it will have to sort out an even more complicated position. Playtech is a significant though junior partner with William Hill in William Hill Online (WHO) and William Hill is Ladbrokes head on competitor. Industry experts feel that William Hill, a 79% owner in WHO, will not allow the Playtech's deal with Ladbrokes because of conflict of interest. And Playtech is earning a fair share of its revenue from WHO.
William Hill holds the right to buy out Playtech's share in WHO after four and six years on the basis of an individual fair valuation. The question that arises is whether William Hill will want to take that call prematurely and whether Playtech will want to exit from WHO prematurely.
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