Regulatory concerns over Sportingbet's Turkish website have scuppered offer talks between the gaming group and Ladbrokes, the bookmaker which was looking at a takeover of the online firm.
The two companies said they had mutually agreed to end the discussions, with the news wiping nearly 20 per cent off Sportingbet's shares. "The potential benefits and risks associated with a combination with Sportingbet were clear to us from the outset and have been well covered by the market," Ladbrokes' chief executive Richard Glynn said. "Having completed our analysis we have been unable to agree a structure which delivers increased shareholder value within an acceptable regulatory environment."
The key stumbling block is believed to have been Sportingbet's Turkish website. Although it has no assets in the country, the website offers services to local residents, something that carries risks owing to the tough anti-gambling regime in Turkey.
Sportingbet, which is currently in talks to sell the arm to GVC Holdings, had flagged up the issue in its prospectus when it moved up to the main market of the London Stock Exchange last year, acknowledging that its activities "in taking online gambling custom from Turkey are considered illegal under Turkish law".
"Turkish law asserts jurisdiction over any act that violates the laws of Turkey if the result of such act occurs within Turkey, irrespective of the location of the offender," Sportingbet, whose shares closed at 37p, down 8.75p, said at the time.
Ladbrokes has proved similarly cautious in the past, with potential legal risks coming in the way of it buying 888 Holdings in 2007. A more recent attempt to acquire that business earlier this year was called off owing to a lack of agreement over price.
In the Sportingbet case, Mr Glynn said there was "just not a structure we can agree on that gives our shareholders an acceptable level of ... regulatory risk". While not ruling out future deals, he also highlighted the fact that the vast majority of Ladbrokes's business was based on organic growth.
But some analysts expressed concern at the lack of conclusion to the talks. "In essence, it sounds like it's back to plan A, which is £50m of investment in the [online arm at Ladbrokes] over two years," Simon French, at Panmure Gordon, said. "I think it's concerning that they continue to enter talks with companies and then don't seem to be able to close out the deal. It begs questions about whether other companies will be willing to enter acquisition talks with them in the future."
Earlier, Paul Leyland, Mr French's counterpart at Investec, had warned of the hurdle presented by the Turkish website. In a note to clients last week, he expressed worry that, while the talks were ongoing at the time, "Turkey will be difficult (if not impossible) to extract 'cleanly' to Ladbrokes's satisfaction."
"We also see Sportingbet's platform and expertise as much better suited to Southern Europe '.com' markets than Ladbrokes should want or need from an operational or regulatory perspective," he added.Reuse content