THE TOTE, the state-owned betting operator, is working on a bid for Stanley Leisure’s £500m betting-shop business.

It hopes to gatecrash the deal being negotiated between Stanley and William Hill, Britain’s No 2 bookie, and has hired Lazard, the investment bank, to help it prepare an offer.

Last week, The Sunday Times revealed William Hill was in talks to buy the business, a move confirmed last Monday to the stock exchange.

David Harding, William Hill’s chief executive, has a short period of exclusivity in which to try to agree a deal with Stanley for its 600 betting shops.

The Tote’s plan, should the talks with William Hill stall, is to form a special-purpose vehicle, in partnership with a private-equity group, that would be used to make the acquisition.

But aside from William Hill being in pole position, there are a number of obstacles to any deal and analysts said the odds were stacked against the Tote.

The chief difficulty is the uncertainty over the Tote’s ownership structure.

The government has plans to sell the Tote to a racing- industry trust, and this remains a pledge in its election manifesto.

But the deal may be looked at by European competition regulators. The question marks make it more unlikely that a private-equity group will want to get involved in a joint bid.

The Tote would also face strong competition from rival betting groups, which would see the acquisition of the Stanley betting shops as a prime opportunity to enlarge their estates.

Last week, Coral, the No 3 player with 1,100 shops, confirmed its interest. It said: “We are going to keep our options open. There’s still some uncertainty remaining over the price and execution of this deal.”

William Hill has put plans for a £453m return of cash to shareholders on hold while it tries to add Stanley’s shops to its 1,610-strong estate. A deal would mean William Hill would overtake Ladbrokes as the market leader with 1,900 outlets. It would also leave Stanley as a casino operator.

News of the possible deal sent Stanley’s share price soaring last week. The shares closed at 546p, valuing the group at £705m.

Despite the rise, the company’s biggest shareholder, Genting, a Malaysian conglomerate with strong gaming interests, saw fit to top up its stake, taking its holding to 20.3%.

There has been much speculation that it intends to try to engineer a merger of Stanley with rival gaming firm London Clubs International.