A stinging criticism of one of the gambling industry's most high-profile mergers by an outspoken shareholder could see it stumble at the final hurdle and encourage rival bids.
Dermot Desmond, chairman of private equity business International Investment and Underwriting, sent a letter to Ladbrokes' (LAD) shareholders and stockbrokers covering the company outlining his opposition to the planned deal. His move is mischievously timed given a general meeting is scheduled for Tuesday at which shareholders will vote on the proposed deal.
While Mr Desmond is understood to own just 1 per cent of Ladbrokes' shares, the fact he has been a shareholder for nine years and sold his Betdaq exchange to the company in 2013 means he knows this business well and so his opinions could hold sway.
Nick Batram, analyst at Peel Hunt, said the criticisms were "not without foundation", although the letter potentially underestimated Coral management's ability to help turn the group around. He said that while Mr Desmond was not a "material shareholder" the fact he was unhappy "could encourage other people out to vote". Not only that, he added it could "just act as a catalyst to encourage others to join the fray".
A fund manager from one of Ladbrokes' top 10 shareholders, who did not want to be named, said he had been invited to meet Mr Desmond and would try to do so before Tuesday's vote. He said he had owned Ladbrokes prior to the mooted deal, which he described as "okay rather than a stand-out, brilliant transaction".
But he added it was "hard to argue against the fact the market was consolidating and people who don't have scale will be at a disadvantage". He said if the deal did fall through, both would be "at the dance looking for another partner".
Mr Desmond's key criticisms are that Ladbrokes might have to sell a "significant number" of shops if the deal goes ahead and any lost profits from these "may outweigh unspecified synergies" proposed as part of the merger.
He added that the merger "does nothing" to address the lack of proprietary technology - as both rely on third-party platforms to power their sites - and claimed Coral shareholders were "the real winners" as they gained liquidity for their shares and "significant relief from a £2.2bn debt burden". Coral's Q3 update said it had net debt excluding shareholder loan notes of £1.08bn.
A statement from Ladbrokes said it was "not surprised" by Mr Desmond's views as he had been in "extensive dialogue with the management team". It added it was confident shareholders "see the attraction" of the proposed deal.
