William Hill fends off merger – for now

William Hill fends off merger – for now

Friday, August 19, 2016 Posted by Andy McCarron
More M&A likely even as three-way bites the dust

The denouement to the joint Rank and 888 bid for William Hill was suitably low-key. An acquisition attempt that was all but instantly dismissed by the target company finally met its end this week when the consortium bidders threw in the towel citing a lack of cooperation on the part of the William Hill board.

Having made the necessary noises about respecting the decision, Itai Frieberger, the chief executive at 888 said he still believed in the “industrial logic” of the deal. But that logic got lost in contentious differences of valuation which from the off suggested the trio were never on the same page about the “transformational” opportunity.

To recap, the combination as proposed would have created the UK’s largest multi-channel gambling business with interests in high-street bookmaking, land-based bingo and casino, online sports-betting and online gaming. The company would have been worth over £3bn and would, according to 888 and Rank at least, have answered many of the questions posed to each company by the pace of consolidation within the gambling sector.

Now each of them will have to face up to these challenges separately.

Chairman of William Hill Gareth Davies continued with the bullish note struck in each of his company’s rejections of the 888/Rank approach. “The team has a clear plan to grow by diversifying digitally and internationally,” he said, adding that the company had enjoyed a decent start to the second half with 2016 operating profits set to come in at the top end of the previously downgraded £260m to £280m range.

But much as Davies remains upbeat, the (for now) independent William Hill is still vulnerable. It is presently without a chief executive following the departure of James Henderson in July and it will take some time before any evidence emerges of the effectiveness of the current online revamp being led by new online chief Crispin Nieboer.

In the meantime, the William Hill share price is suitably marooned, ending the day on the new of the bid withdrawal at around the 309p level, some way below the original offer of 364p and the renewed price (according to Rank and 888 at least) of 394p. The price somewhat recovered in Friday trading, up 4% on the day to 316p but the questions as to long-term prospects remain. Simon French, analyst at Cenkos, said he expected the company to remain in the spotlight despite the optimism on the operating profit guidance.

“The group needs a new CEO (or potentially CFO), has much to prove in Australia, where it is facing increasingly stringent operating conditions and needs to rebuild in online, not least improving the competitiveness of its UK-facing sportsbook,” he said.

He added that the retail bookmaking business is also under pressure on both regulation of gaming machines and is vulnerable to potential tax rises in either the Autumn statement or next year’s budget. “Its key challenge is to get the share price above the 394p a share offered by the consortium, a 30% premium to last night’s close,” he added.

The challenges for both Rank and 888 are potentially no less taxing. The rationale behind the consortium bid was that none of the three had enough scale to truly compete in the newly agglomerated landscape. The industrial logic that Frieberger spoke of would appear to still hold and speculation will now turn to which other combinations might have appeal.

Potential opportunities for further M&A in the sector abound. Sky Betting & Gaming is a likely acquirer or acquire depending on how the current owners CVC – which bought the company in December 2014 for up to £720m – views its long-term interest in the sector. It’s an open secret that GVC Holdings remains interested in further deals, and its recent new debt arrangement points to a potential willing audience among the banks should it need extra leverage. Intertain has made no secret that it is up for sale (despite not having received a suitable offer to date) and the future of Amaya is also up in the air.

Totally Gaming says: Whether any of William Hill, 888 or Rank is involved in any future deals is open to question. That particular combination would appear to be off the menu for now – unless William Hill has a massive change of heart – but it must be a good bet that their collective names will crop up in future M&A stories, either real or imagined.

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