Comment: Two suffer, but one real loser after merger talks collapse

BOOKMAKING giant Ladbrokes and online rival 888 are both damagedby the breakdown of their merger talks. Ladbrokes is left withoutthe classy internet casino offering that its acquisition targetwould have provided, with all the accompanying benefits ofdiversified earnings in a changing gambling environment. And 888loses a potential partner that could have provided the capitalmuscle to take on bigger online gambling giants, typfied most of allby bwin.party digital entertainment.One of the parties lacks asufficiently strong internet gambling proposition, the other lacksscale. However, the two companies' sharply contrasting share pricereactions to the merger derailment shows the City has fingered 888as the bigger loser.The online gambling group's shares tumbled 16per cent yesterday after the stock exchange announcement, whileLadbrokes lifted 7 per cent.It is a missed opportunity for theowners of 888, the Shaked and Yitshak families, who hold 61 per centof the equity.The company is believed to be sitting on just E20million (about GBP17.7m) of cash, compared with a cash pile of morethan E300m at bwin.party, formed recently from the merger of Britishinternet gaming giant PartyGaming with bwin of Austria.Now 888,without the capital backing that a rich company like Ladbrokes couldprovide, is in danger of being disconnected from the top table ofdigital poker and so on, with insufficient financial heft to developthe business.And what of Ladbrokes' positive share price reaction tothe talks breakdown yesterday? Clearly the market thought it was indanger of overpaying, and was relieved the bookmaker's chiefexecutive, Richard Glynn, walked away.City sceptics wondered whyLadbrokes did not just buy an online gaming software provider - thelikes of Playtech for instance - and develop its own offering,rather than shell out top dollar for an established internetgambling business.Many also doubted a key rationale for theacquisition, with Ladbrokes saying it believed there would be a lotof costs that could be taken out of the merged company.But 888 isregarded as a pretty streamlined leisure animal by many industryexperts already, with a lot of costs taken out by existingmanagement under outgoing chief executive Gigi Levy.The 888 chiefexecutive announced this week he was stepping down, and there mustbe a suspicion that Levy knew which way the wind was blowing on themerger and believed he could not take the company further with itscapital constraints.Fine balancing act between inflation andinterest ratesIS MACRO-inflation becoming the norm again rather thanthe exception? China and India both reported higher-than-forecastinflation levels yesterday, mirroring the latest prices data fromthe eurozone.America is in the same boat as food, commodity andenergy costs rise across the world.The latest figures yesterday makeit even more surprising that the UK earlier in the week was able toreveal that inflation here fell to 4 per cent in March from 4.4 percent the previous month.News that Chinese inflation accelerated to5.4 per cent in the year to March from 4.9 per cent in the first twomonths of 2011 is the most disturbing sign, and together with therises in India, America and the eurozone makes it questionablewhether the UK can buck the trend again.That is the fastestinflation rise in China since July 2008, while Indian inflation isrunning at a vertiginous rate of nearly 9 per cent.One of theproblems is that many British companies have identified the so-called Bric countries - Brazil, Russia, India and China - as theprime growth markets for several years now.Those countries havetaken up the slack from slowing growth in mature economies such asthe US and the eurozone.If, as seems increasingly likely, thecentral banks in those key Bric markets move again, sooner ratherthan later, to tighten monetary policy to address the inflationmonster it would help choke off consumer demand there and hitwestern growth prospects as well.