William Hill shares suffer rejection for a second time

William Hill shares suffer rejection for a second time

Monday, August 15, 2016 Posted by Andy McCarron
The board move quickly to say no to renewed offer

So the saga of William Hill, Rank and 888 gets drawn into another week of tit-for-tat stock exchange releases. Those with knowledge of the Beatles back catalogue will have appreciated William Hill being the first to issue an announcement on Monday morning rejecting a bid which had yet to be given public distribution by 888 and Rank. It’s like Abbey Road being released before Let It Be despite being the last recording.

But timings weren’t the only confusion. There would appear to be a difference of opinion with regard to the price. 888 and Rank suggest the offer is worth 394p, consisting of 199p plus 0.860 new 888 shares which based on the closing price of 888 shares on the day prior to the bid. In comparison, William Hill values the bid at a lower 352p based on combining the market caps of the three entities on the day prior to the bid, then subtracting the value of the cash offer (over £1.7bn).

Though it is silly season, it does seem like William Hill is indulging in some balance sheet accountancy measures to make the offer sound quite as derisory as they obviously believe it to be. In fairness 888 and Rank indulge in something similar when they suggest that the potential cost synergies of the three-way combination should be added to the value for William Hill shareholders. Such a suggestion clearly doesn’t hold any water either.

Whatever, the market still clearly believes that William Hill is likely end up winning the argument. Its share price movement would suggest the same – it was down over 6% at close on Monday, or 21p to 312p. In the statement, William Hill chairman Gareth Davies reiterated the board’s opposition to the bid. “This revised proposal continues to substantially undervalue the company and the cash element of the proposal has not changed. Therefore, the Board sees no merit in engaging. As we have said before, this is highly opportunistic and complex.”

The second rejection follows on from a charm offensive undertaken over the weekend by Itai Freiberger, current chief executive at 888 and proposed chief operating officer at the combined entity, and Henry Birch, the current Rank chief executive and proposed boss for the new company.

The latter added today: “With a 48.8% share in the combined business, the largest proportion of the benefits would accrue to William Hill shareholders (as well a significant cash payment), and we hope to engage the William Hill Board in constructive discussions to deliver a deal that makes compelling strategic sense for all three businesses.”

But there is the issue of the debt. As Paul Leyland, partner at gambling consultancy Regulus Partners, said late last week, while the combination of the three companies does have its merits – particularly when it comes to matching operating components together – the nearly pre-synergies 4.4 times EBITDA multiple for the proposed debt “requires nearly everything to go right”. “In an environment where the UK government is hungry for tax receipts, while under increasing pressure on machine gaming and gambling advertising, assuming that everything will go right is – to put it mildly – dangerous,” he added.

Totally Gaming Says: "As with BBC TV’s a Question of Sport, it is hard now to see what happens next. Many are questioning whether the bidders could ‘go hostile’ and appeal directly over the heads of the William Hill board to its shareholders. Yet the terms of the current offer would appear to preclude this, suggesting as it does that a pre-condition of any deal would be a unanimous recommendation from the William Hill board. It is hard to see that 888 and Rank would be willing to go that extra mile – potentially north of 400p – to make that happen."

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