The UK Competition & Markets Authority (CMA) has said it will allow Ladbrokes and Gala Coral to continue with their merger plans, but only if the firms divest 350-400 betting shops.
The proposed merger would create Britain’s biggest bookmaker with around 4,000 betting shops, but the CMA has identified 659 areas across the country where the deal could harm competition.
The outcome will probably be acceptable to the firms, given that CMA’s decision was at the lower end of the market estimates for the number of shops that would have to be sold off, with some estimates suggesting that around 1,000 would have to be passed on.
In a statement, Gala Coral commented: “Gala Coral notes the announcement from the Competition & Markets Authority (CMA) that it is provisionally minded to clear the proposed merger between Coral Group and Ladbrokes plc subject to agreeing appropriate remedies. Gala Coral will continue to work with the CMA in order to agree the remedies, but the CMA has indicated that the sale of 350-400 shops would enable a final determination in favour of the proposed merger.”
The planned £2.3 billion merger of Ladbrokes-Coral had entered its CMA markets and competition review in December 2015. Following its merger study, the CMA has concluded that the merger will reduce consumer choice in “a large number of local areas”.
The combined retail inventory of Ladbrokes-Coral stands currently at 4,050 betting points (Ladbrokes 2,200: Coral 1,850) which would see the new enterprise leapfrog current market leader William Hill’s 2,400 betting shop portfolio.
Issuing its report, the CMA noted that the merger would change the landscape of the UK betting industry at retail level, specifying that the combined ‘big four’ of William Hill, Ladbrokes, Coral and Betfred would control 87% of UK betting shops.
The CMA, as with previous mergers, looked at competition at a local level and took a view of 400 metres around LBOs as a starting point for its analysis. This approach identified the 659 areas where competition would be affected, but in many situations the selling of one LBO would remedy the problem in more than one area.
CMA said that any shop sales would have to be ‘substantially completed before the merger can go ahead’ and as such hasfor its final report by 8 weeks to 19 August 2016.
The report considered whether the rise of online betting since the last big LBO merger had altered the market enough for it to look at retail bookmaking in a different way, but concluded that it would not be appropriate just yet.
It explained: “In light of the significant growth of the online channel, we considered whether the retail and online channels could be regarded as substitutable such that they should be treated as forming part of the same relevant product market.
“We found that there has been a material degree of migration from the retail channel to the online channel over time, which appears to have had at least a medium- to long-term impact on the Parties’ strategies insofar as product development and innovation of their retail offerings are concerned. The growth of the online channel appears to have also had at least a small impact on the Parties’ pricing strategies for the retail channel.
“However, on balance, the evidence indicated that the constraint from the online channel on the retail channel is not sufficiently strong for these channels to form part of the same relevant product market.”
Martin Cave, Chairman of the CMA, detailed that the authority still had additional concerns regarding the merger and its overall market impact:
“Discounts and offers of free bets to individual customers are ways betting shops respond to local competition which could be threatened by the merger. We’re also concerned that such a widespread potential reduction in competition at the local level could worsen those elements that are set nationally, such as odds and betting limits.”
As for provisional buyers of the divested shops, there are a couple of potential partners. The tidiest solution would be for Irish bookmaker Boylesports to finally make an entry into the UK market and pick up the shops, as owner John Boyle has expressed an interest. Other potential buyers would be Betfred and Paddy Power, although both of these might have a few issues if they already have betting shops in the 659 affected areas.