BUSINESS

GVC gets bigger, more impressive, and more unwieldy

TAGs: Editorial, GVC Holdings, Ladbrokes, ladbrokes coral

GVC is certainly becoming a very large company, now that regulators have approved its deal to acquire Ladbrokes Coral. The ever wily GVC is being praised for its genius move of offering Ladbrokes a sliding contingent offer based on whatever the politicians in the House of Commons decide will be the maximum safe allowable bet at fixed odd betting terminals that makes up so much of Ladbrokes’ revenues, and that will end the problem of gambling addiction once and for all. Having covered all the bases before the pitch was even thrown, GVC made an offer that Ladbrokes Coral couldn’t refuse.

GVC gets bigger, more impressive, and more unwieldyGVC’s latest acquisition follows its last-minute sniping of 888 for bwin.party, which itself merged in 2011, rather unsuccessfully. Now with Ladbrokes Coral, GVC is effectively, GVC Ladbrokes Coral bwin.party and friends. Plus a bunch of other satellites that GVC has gathered recently including a Greek gaming company called Zatrix, and Georgian firm called Mars LLC, or the Crystalbet Acquisition. Greece and Georgia. Hmm….

It’s been rather impressive how GVC has managed to accomplish all this roll-up without leveraging itself up the wazoo. Its debt, before the merger with Ladbrokes Coral at least, was only £300M, just over 10% of its market cap. With all the acquisitions it has splurged on, it could be considered something between miraculous and sleight-of-hand.

There is an answer as to how GVC has managed to do all this, but before I just blurt it out, let me say GVC has proven me wrong time and time again. Its share price just keeps marching on higher and higher, despite a less-than-conservative business model, dangerous markets, and, of course,losing money. GVC has lost £178M over the last two years, and £284M overall since its founding.

So how did they do it? It’s something of a self-fulfilling positive feedback loop driven by rising equity. Take the latest deal with Ladbrokes Coral. 32.7 pence in cash and 0.141 GVC share per Ladbrokes share amounts to £625M in cash and the rest paid in issued equity. The higher GVC shares go, the more attractive and valuable are its share-based offers for potential buyouts, the more it can rely on just gifting shares to those it merges with and the happier its partners are to receive those shares. And the more GVC acquires, the bigger it looks, the more excited shareholders become, the higher its stock goes, which feeds right back into the loop for the next acquisitions.

The question is, what good are the acquisitions for besides creating a giant gambling umbrella organization with GVC at the head? What is the glue that will keep all these moving parts together besides being all loosely in the gaming industry? Do they function together, or are they just an impressive gathering of names that executives can list off regarding how much market share in whatever segment is under their control?

It sort of reminds me of the AOL-Time Warner merger of 2000, though not as blatant in its merger-for-the-sake-of-a-merger nature. Yes, different segments of the gambling market are related, and there might be some cost-savings and efficiencies that can be found here and there thanks to it all being under common ownership, but is there anything really compelling about the fact that Ladbrokes Coral Group and GVC are now owned by the same people? Maybe there is something compelling to a sharper eye, but nothing really stands out all that obviously to my average vision. Perhaps the fact that I can’t see it is the reason I’m not at the top of the industry making all the important decisions.

Skeptical about this assessment? Me, too. GVC has gone much higher for much longer and impressed far more investors than I ever anticipated, and good for them. But listen to what the UK regulators at the Competition and Markets Authority had to say when approving this deal. It relegated a foundational brand of British betting culture since the 19th century to a subsidiary of what is turning out to be a modern roll-up behemoth. (Emphasis mine.)

GVC has a small presence in the UK and only offers services online. The Competition and Markets Authority has found that GVC and Ladbrokes are not close rivals and there are many other providers of betting and gaming services online. The CMA looked closely at betting services for individual sports and individual games but found that, in all cases, there will be enough rivals to the merged entity to prevent price increases or a reduced quality of service as a result of the merger.

If they are not close rivals then what is the point of merging? Can sports betters in Germany and Italy have any impact on FOBT gamblers at betting shops in the UK? Yes, there will be some efficiencies and synergies and overlap, but really, Ladbrokes Coral and GVC are two different companies. They just happen to be under the same umbrella now.

What I’m worried about is what happens to GVC’s various disparate parts when the equity bull that has been fueling this motley collection of gaming and betting firms comes to a halt? It’s the acquisitions that have been fueling the stock price.It hasn’t been the money, since none much has been made yet. It’s the promise of higher earnings through the excitement of mergers and acquisitions that has fueled much of this run and may continue to do so yet. Who knows for how much longer though.

When I think of GVC Ladbrokes Coral bwin.party Zatrix Mars LLC, I think of all these separate firms that have merged together though I don’t understand exactly why, other than for the money of the deal.

So will this merger help? I don’t quite see how it could hurt exactly, but I don’t see how it really changes all that much for the positive either, aside from GVC getting to show everyone how big it is and how much it owns now.

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