Too many false starts and too high a price tag in race to buy the Tote

With the sale still unconfirmed, the odds on a successful deal are getting longer by the day

A queue of bidders is lining up to make a play at the Tote – but only if the Government is willing to drop its £405m valuation.

Last week The Independent on Sunday revealed that Andy Stewart, the high-profile racehorse owner and founder and head of Cenkos Securities, was keen to hold talks with ministers about floating the state-owned bookie on the AIM stock market. But he said he believed the recent slump in the value of gambling companies, and the accompanying credit crunch, meant that the business could be worth as little as £260m.

Gaming-industry insiders say that several UK and international companies are closely watching the situation and could enter the fray if the Government instead pushes ahead with an "open market" auction.

The keyword is "if", with the Department for Culture, Media and Sport refusing to give details about how a sale might be conducted or even to confirm that it is planned.

Expectations will also have to be lowered. One insider said it would be all but impossible for a trade buyer to get close to the £405m price tag, given the recent fall in the share prices of Britain's biggest bookies, Ladbrokes and William Hill. The independent valuation was made by PricewaterhouseCoopers to ensure that a closed sale to a racing consortium did not violate EU rules banning state aid to industry. When the consortium offered £320m, PwC stuck to its guns, and the bid was rejected.

In the event of an auction, Gala Coral is set to rekindle its interest after an earlier approach close to £405m received no response. Foreign firms that held talks about helping to finance the bid, before the Government torpedoed their involvement, could also return. Industry insiders have cited lottery-infrastructure companies such as Nasdaq-listed Scientific Games, Intralot, Opap or Lottomatica, the Italian owner of Gtech, as potential bidders. The Tote's pool-betting operation – where punters' money on any race is pooled, with the cash divided up between winning tickets less the Tote's deduction – would be of great interest to them as a foothold in Britain.

That leaves open the prospect of one of them joining forces with Coral, which has little interest in pool-betting but wants the bookie's 540 betting-shops. Buying these would help it catch up with Ladbrokes and William Hill. The two giants are unable to bid, on competition grounds.

Paul Leyland, gaming analyst with Arbuthnot Securities, has questioned Coral's ability to come close to matching the Government's valuation. He said: "If you look at Gala Coral's accounts you will see that on 29 September the company was trading at 11.5 times debt to Ebitda [earnings before interest, tax, depreciation and amortisation]. Since then trading has fallen off a cliff."

Mr Leyland has another theory, however: "Maybe the Government is being cute about this. If they put it to the market and offers topped out at £300m, they could then go back to the EU and say that was the market price before looking at alternatives."

One racing industry source said: "The problem is it [the Government] is running scared of the EU rules on state aid and it's virtually impossible to get anything done at the moment."

It is this fear that is driving the current impasse over the future of the Tote. Sports minister Gerry Sutcliffe probably hoped he had dealt with accusations that the Government had reneged on its manifesto commitment to sell the Tote to racing by promising 50 per cent of the "open" sale proceeds would be gifted "to racing".

But by making this pledge, Mr Sutcliffe has created a rod for his own back. How, exactly, will he get the money to racing without violating those rules? The solution favoured by officials is probably to kick the whole thing into the long grass and forget about it until after the next election. The trouble is that the most profitable part of the Tote – that chain of betting shops – is desperately in need of investment. The shops look dowdy and dark when compared with the swish new Ladbrokes, William Hill or Corals outlets.

The Tote's respected former chairman Peter Jones knows only too well that the business remains in limbo while ministers dither. In a Racing Post interview he said the sale had been conducted with "staggering incompetence". Few in racing would disagree.