News

Tuesday, 10 May 2011 00:38

The ongoing talks between UK bookmaker Ladbrokes and 888 Holdings on a possible acquisition have collapsed as Ladbrokes shares rise and 888 shares fall.

The announcement came on Friday that the UK's biggest bookmaker, Ladbrokes had abandoned its talks with potential acquisition of online gambling group, 888 Holdings Ltd. The discussion had been going on for four months with a view to the larger bookmaker absorbing the smaller online operator in a deal that would have boosted Ladbroke's currently limited online gambling presence.

Chief Executive of Ladbrokes, Richard Glynn said that it transpired the anticipated takeover of 888 Holdings was not likely to create value for the company's shareholders. While the talks ended amicably, he made the decision based on the interests of shareholders.

As a result of the breakdown of talks, there was a rise of 9 percent in Ladbrokes shares as they rose to 144p, increasing the group's equity value to £1.3 billion. While shares in Ladbrokes gained ground, those in 888 fell 16.9 percent to 34½p, reducing its value to just £120 million.

Another reason that caused talks to break down was due to the expectations of both sides on the buyout price of shares. Where Ladbrokes expected around 70p per share, 888's key investors expected 80p per share and the gap could not be bridged.

Interestingly, this is the second time that the two companies have been in lengthy talks over a deal that ultimately broke down. The previous attempt was almost exactly four years ago when agreement could not be made on some aspects of the deal and the two sides walked away from it. Richard Glynn was not closing the door altogether on the possibility of future discussions between the two firms with a "never say never" approach.

Ladbrokes are still under pressure to deliver on their previously announced organic expansion plans into the online gambling arena. On Friday they released their quarterly trading update, showing a net revenue increase of 2.3 percent and an operating profit rise of 1.9 percent on the same period last year.

As for 888 Holdings, they occupy an online market that is becoming increasingly competitive. They need to find another suitable partner or be pressured into restructuring the business in order to compete on a more even footing with some of the recent big mergers, such as Bwin Party and increase their profitability for increasingly concerned shareholders.