Ladbrokes and Coral request fast-track reference to phase 2 merger investigation

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

On 16 December 2015, the UK Competition and Markets Authority (the “CMA”) launched its investigation into the merger of Ladbrokes and Coral. Prior to the investigation’s launch, the parties requested that the merger be fast-tracked for an in-depth phase 2 review. The CMA is seeking third-party comments on the fast-track request and is due to decide on the issue by 4 January 2016.

This is the latest deal in a wave of UK gambling sector consolidation in 2015. Paddy Power and Betfair received CMA clearance for their merger on 17 December 2015 after an initial phase 1 investigation, indicating that the deal raised no serious issues. GVC’s merger with bwin.party is also progressing, with bwin.party shareholders providing approval for the deal on 15 December. Both transactions are expected to complete in the first quarter of 2016.

The £2bn merger of Ladbrokes and Coral was approved by shareholders at the end of November and if it proceeds will create the largest high street bookmaker in the UK. Choosing to request a fast-track to phase 2 indicates that the parties accept that the transaction will give rise to competition issues in the UK and that a potentially large number of betting shops will require divestment to a third party (or third parties). The fast-track procedure was recently used by BT and EE, who have received provisional clearance for their merger.

Ladbrokes and Coral will have had the benefit of detailed discussions with the CMA prior to formally notification, which will have given an indication of the CMA’s likely approach to assessment of the deal. In this type of retail-level merger, the CMA’s usual approach is to assess the competitive effects by reference to the parties’ local overlapping markets.

In the most recent bookmaking merger reviewed by the UK regulator, the acquisition of the Tote by BetFred in 2012, the CMA’s predecessor examined the extent of competition on the basis of a 400m and 800m radius around the parties’ betting shops. In that case, it was decided that the transaction would give rise to competition issues in 25 local areas and divestments had to be made in order to secure a clearance decision.

For Ladbrokes and Coral, it can be expected that on the many UK high streets where they operate the majority of betting shops, the CMA will require outlets to be sold on to third-parties in order to address competition concerns. The CMA will also consider the implications at a national level of a merger of two of the leading betting operators.

If the CMA accepts the parties’ fast-track request, as it almost certainly will, a decision on the merger can be expected in early summer 2016. The phase 2 review process is particularly onerous on the parties and will involve submission of a great deal of information as well as site visits and a hearing where the parties can present their views in person. Third parties, in particular competitors, can also be expected to receive requests for information and to be invited to meetings with the CMA. If the CMA decides to clear the deal subject to betting shop divestments, the process for approving proposed purchasers of divested outlets and implementing such divestments should be completed within 6 months from the CMA’s decision and could potentially continue into early 2017.