Ladbrokes slips after purchase aborted







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Ladbrokes slips after purchase aborted

10/10/2011

Simon Goodley

Pressure likely to mount on chief executive Richard Glynn as bookmaker ends talks with online gaming group Sportingbet

Shares in Ladbrokes slipped close to an all-time low after the bookmaker aborted its latest effort to patch up its struggling online business by abandoning acquisition talks with Sportingbet.

News of the U-turn – which followed a similar conclusion to talks to acquire another online gaming group, 888, in April – is likely to heap further pressure on Ladbrokes boss Richard Glynn, who joined the group in April 2010 with a brief to beef up the company's digital offering.

Ladbrokes shares edged down 0.9p in a rising market to 119.7p, meaning they now trade at a 24% discount to when Glynn joined the company and have underperformed both the FTSE 250 and archrival William Hill during that period.

Glynn said: "No [I don't feel under any pressure]. I'd feel under increasing pressure if I thought I'd done a deal that was wrong. We're a very tight board. We've determined this every step of the way. We have absolute unanimity on purpose and unanimity on the decision that we've made."

He declined to provide odds on the chances of him still being at the company at the end of what he terms "plan A", a programme to revamp the company's internet operations organically, scheduled for completion by the middle of next year.

Analyst Simon French at broker Panmure Gordon said: "In essence it sounds like it's back to plan A, which is £50m of investment in the [online] division over two years. I think it's concerning that they continue to enter talks with companies and then don't seem to be able to close out the deal. It begs questions about whether other companies will be willing to enter acquisition talks with them in the future."

However, the rationale behind the aborted deal – to provide Ladbrokes with much improved online betting technology as well as an international business – remains and market watchers identified Unibet as another potential target. Glynn declined to comment.

Ladbrokes had been in talks with Sportingbet since June, but the target's business in Turkey, where unlicensed gambling websites are illegal, was seen by analysts as a stumbling block to a successful takeover. That issue appeared to have been resolved in July, however, when Sportingbet announced it was discussing selling its Turkey-facing site for an estimated £100m to AIM-listed GVC Holdings.

But Glynn said: "We have been unable to agree a structure which delivers increased shareholder value within an acceptable regulatory environment".

Glynn pulled out of talks with 888 in April because of long-running differences in what each side thought the business was worth.

One gaming analyst, who declined to be named, said: "I suspect that Glynn will now be under pressure. There was always an issue [with the Sportingbet deal] that was obvious to everybody. They have now spent months to conclude that the obvious block cannot be avoided. He is yet to deliver anything online and Ladbrokes shares are at an all-time low."

When Glynn joined the company last year he was handed a package that meant if Ladbrokes' share price doubled over the next five years to £2.97, he would collect £12m in stock. While that punt is looking increasingly unlikely to pay out, the downside for Glynn, who earns a salary of £580,000 a year, is limited. He currently holds just 268 Ladbrokes shares which are worth slightly more than £320.

Sportingbet said its talks with GVC continue, but its shares still slumped by more than 19% to 37p.

Despite the market expecting a Ladbrokes bid at around 70p-80p, Sportingbet shares never rose above 60p during the talks, indicating that few investors believed that a deal was a certainty.

Simon Davies, of broker Collins Stewart, said: "Sportingbet's share price reflected a low probability of success, but this is undoubtedly disappointing. We now expect it to sell its Turkish operations; bringing in around £80m over several years, and reducing regulatory risk. It comes at a price – with circa £28m knocked off full-year 2012 ebitda [earnings before interest tax depreciation and amortisation] and earnings per share diluted by around 50%. We think the reduction in risk will drive a positive response, increasing the attractions for other potential bidders, such as bwin.party or Betfair."