Ladbrokes may face leveraged buyout

The perceived risk of holding Ladbrokes Plc debt increased after a report that the world’s largest publicly trader bookmaker may be taken over in a leveraged buyout, according to traders betting on the creditworthiness of companies in the credit-default swap market.

A leveraged buyout of a company can occur when another company uses a considerable amount of borrowed money to meet the cost of acquiring the relevant company. Essentially, traders are betting on Ladbrokes being taken over because of a deterioration in credit quality.

Ladbrokes have recently been continuously linked with a bid for 888 Holdings, so this news may come as a shock to many.

Shareholders in Ladbrokes may find any offer too good to resist after rejecting a bid from CVC Capital Partners Ltd of £3.7 billion earlier this year, with the market value of the company falling by £2.7 billion after recent earnings were hurt by a bad month for the bookmaker in October.

“The threat of an LBO (Leveraged Buyout) could continue,” said Sonia Van Dorp, a credit analyst at Societe Generale SA in Paris. “Ladbrokes' equity value has barely moved year to date, partly because there has not been any acquisition this year, partly because operating performance has been disappointing.”

The idea of a leveraged buyout is something investors are very cynical of, due to its very nature, where a large amount of money is being borrowed to acquire a company.

However, according to analysts, if Ladbrokes were successful in a large acquisition such as 888 Holdings, this would ease the threat of a potential LBO.

Editor, - 2006-11-28 11:42:04

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