3rd UPDATE: UK Kicks-Off Preparations For Possible Tote Sale

Jul.21, 2008 in Market Outlook

By Lilly Vitorovich
Of DOW JONES NEWSWIRES

LONDON (Dow Jones)–The U.K. government has started long-awaited preparations for
the possible sale of its Tote bookmaker business in the autumn, with Gala Coral
Group seen as the frontrunner to buy the nation’s fourth-largest bookmaker.

But Sports Minister Gerry Sutcliffe said no final sale decision has been made.
The government will need to be satisfied it is right to proceed with a sale in
light of market conditions at the time.

“The government remains of the view that it is appropriate that it removes itself
from detailed involvement in the affairs of the racing and bookmaking
industries,” Sutcliffe said in a statement.

“We also want to give certainty to the Tote and its businesses so that they can
develop and flourish for the benefit of their staff and racing.

“Having received preliminary views from our advisers on the strategic options
available with regard to the Tote, it is clear that the Tote is a highly
attractive asset which would enjoy significant interest if brought to market in
an open auction,” Sutcliffe said.

The government intends to commission detailed work on Tote to be undertaken
during the summer, which would provide the necessary groundwork to launch a sale
in the autumn, he added.

The announcement is expected to generate interest from privately-held betting and
gambling company Gala Coral, Irish bookmaker Paddy Power PLC (PLS.DB) and U.K.
football gaming firm Sportech PLC (SPO.LN), said a gaming analyst, who spoke on
condition of anonymity.

Gala Coral is “seen very much as the frontrunner,” he added. In November 2006,
the Financial Times reported that Gala Coral was offering to buy the Tote for
GBP325 million.

The nation’s two biggest bookmakers, Ladbrokes PLC (LAD.LN) and William Hill PLC
(WMH.LN), would get the most synergies, but given major competition concerns are
unlikely to bid, the analyst added.

Gala Coral, Ladbrokes, William Hill and Paddy Power Monday all expressed interest
in buying some or all of the Tote.

“We remain interested in the Tote and await for further information from the
government on the next development,” a Gala Coral spokesman said.

He declined to comment on the possible price tag for Tote until the government
releases the Memorandum of Information, and after Gala Coral sees the group’s
financial accounts.

A Ladbrokes spokesman said the group is monitoring developments surrounding the
possible sale, and would be interested in some elements of the business.

However, any interest would depend on the nature of the sale, he told Dow Jones
Newswires. Ladbrokes wouldn’t consider buying all of Tote given that it would
raise competition issues.

“If the government were to sell off the Tote estate in chunks, we would possibly
be interested if there weren’t any competition issues,” a William Hill
spokeswoman said.

A spokesman for Paddy Power said it would be interested in the Tote, depending on
the timing and the price. “The Tote is certainly something we’d have a look at if
the opportunity was there,” said spokesman Paddy Power, a son of one of the
founders. “We are underrepresented in the U.K. given the strength of our brand.”

He said it looked to be a long sale process and any sale would depend on the
price, given the current climate: “In theory it fits into our expansion plans,
but any business for sale we’d have a look at. That includes the Tote.”

Gala Coral and Sportech weren’t immediately available to comment.

On March 18, Sportech revealed that it had lodged its interest in the Tote
following the government’s announcement a fortnight earlier that it intended to
sell the business.

The government is unlikely to get the GBP400 million sale price tag that has been
speculated in the past given the difficult economic conditions, said the gaming
analyst.

The Horserace Totalisator Board, better known in the U.K. as the Tote, is a
statutory body created by an Act of Parliament in 1928. It is currently
incorporated under the Betting, Gaming and Lotteries Act 1963, according to the
Department for Culture, Media and Sport.

The Tote is one of the principal betting organizations in the U.K., with more
than 4,000 employees, more than 450 shops, a major presence on the 59 racecourses
in Britain, as well as Internet and telephone betting facilities.

The Tote offers a full range of fixed odds bets and also holds and operates the
monopoly to conduct pool betting on horse races at race courses in the U.K.,
which is marketed as Totepool. Total group turnover is more than GBP2.4 billion.

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