LONDON (Reuters) - GVC Holdings (GVC.L) shares surged on Wednesday after a government ruling on the UK gambling sector spared the company a major cash outlay to former Ladbrokes shareholders.
GVC would have been liable for a payment of about 670 million pounds to former Ladbrokes shareholders if legislation aimed at tackling problem gambling had not been introduced before the end of March next year, analysts said.
On Wednesday, the government said it brought forward the introduction of the cap to April next year, bowing to pressure from lawmakers.
But analysts said they expected enactment of the statutory instrument next week, taking the probability of GVC having to pay out down to zero.
GVC issued securities known as Contingent Value Rights (CVRs) as part of their takeover of Ladbrokes in March 2018.
The CVR required GVC to make the payment to former Ladbrokes shareholders if a cap on the maximum stake on fixed-odds betting terminals (FOBT) - gambling machines considered highly addictive - was not implemented by March 28, 2019.
"The one-off cost to GVC of the earlier implementation of the FOBT (caps) is around 80 million pounds, so materially less than it would have to pay out if implementation was delayed," said Simon Davies, analyst at Canaccord Genuity.
"With this risk dispelled, and with certainty on the regulatory outcome in the UK, we think many negative catalysts are out of the way," said Berenberg analysts.
GVC shares closed up 5.6 percent, posting their best day in two weeks.
The rally spread to the whole gambling sector, which analysts said had been under significant pressure ahead of the government's announcement.
"It looked over-sold, with valuations factoring in an awful lot of negative regulatory news," said Canaccord Genuity's Davies.
Paddy Power Betfair (PPB.I) also jumped 4.9 percent, and 888 Holdings (888.L), JPJ Group (JPJ.L), and William Hill (WMH.L) climbed between 0.7 and 2.2 percent.
(Reporting by Helen Reid and Josephine Mason; Editing by Elaine Hardcastle and Kirsten Donovan)