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Apollo In Fray For Buying Out Gala Coral

December 22nd, 2009

It has been recently reported that the US Equity Firm Apollo will place a last minute bid for acquiring the gaming conglomerate Gala Coral. Gala Coral has been reeling under a massive £2.6 billion debt commitment, brought on in part by the smoking ban enforced in all bingo clubs and the ongoing economic recession.

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Under its bid terms Apollo is expected to offer the ailing Gala Coral £250 million for a 50% stake in the latter’s business. Gala’s junior lenders will have to contend with the remaining 50% shareholding in the group. The cash infusion could be used to settle the senior lenders in the group’s Balance Sheet. Apollo would continue with effective control of the group by virtue of securing 50% voting rights in the company.

Apollo has joined several other private equity firms, including Blackstone, who have also expressed strong interest for acquiring Gala Coral. Gala Coral boasts of one of the largest bingo networks in the nation with more than 2,000 betting shops, 230 casinos and 148 bingo clubs operating under its wing. Apart from these private equity firms, it was earlier reported that a consortium of Gala’s mid-sized debt holders had devised a debt-equity swap deal that could wipe out more than £540 million of debt from the balance sheet.

Under both deals, the one proposed by Apollo and the other proposed by the lenders’ consortium, the original shareholders of Gala Coral could be given a raw deal. Their holding in the company could virtually be reduced to nothing. As such for any acquisition deal to be effective the requisite approval must be obtained from shareholders. The Apollo deal could thus, fall flat because it is apparently shareholder-unfriendly. However, the junior and senior lenders have reportedly been in support of Apollo’s acquisition bid and have already begun talks to engage the group’s stakeholders and secure their assent to the deal. Apollo has a proven track record in the gaming industry. It holds a significant stake in Harrah’s, a Las Vegas gaming specialist.

Reducing the group’s debt commitments is currently of utmost importance and the Apollo deal addresses this quite efficiently. However, shareholders will also want to pay heed to the debt-equity swap deal proposed by the lenders’ consortium because it involves reducing debt exposure by more than 20% and bringing it below the psychologically significant £2 billion dollar mark. It would mean that voting rights and effective control of the company would pass over to the consortium, however. The consortium mainly comprises two private equity firms, International Capital Group and Park Square.Blackstone is still in the process of preparing and submitting a bid. Once the third plan is unveiled, shareholders will be in a better position to assess as to what would be the best road to recovery for Gala Coral.

Calvin Azuri

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Apollo In Fray For Buying Out Gala Coral

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