William Hill and Amaya talks split analysts

William Hill and Amaya talks split analysts

Tuesday, October 11, 2016 Posted by Andy McCarron
Proposed merger would produce online giant

The analyst reaction to the proposed merger between William Hill and Amaya was muted despite the prospect of the two companies creating the biggest online gambling company as measured by operating profit.

News that the two companies were in early-stage talks broke at the weekend and was confirmed on Monday morning with a brief statement from William Hill suggesting the two companies were in talks about a merger of equals. It added that the deal would fulfil the strategic objectives of both to create a “clear leader across online sports-betting, casino and poker”.

Analysts at Morgan Stanley pointed out that on 2015 earnings, the company would be second-only to bet365 with regard to online gambling revenues with a combined online revenue of £1.39bn, compared with bet365’s total to March 2016 of £1.55bn. In terms of EBITDA, though, the William Hill/Amaya combo would top the chart with a combined total of £512m to bet365’s March 2016 figures of £448m.

Total revenues for 2015 on a pro-forma basis, including William Hill’s UK land-based bookmaking business, would total £2.3bn, according to analysts at Numis, while total EBITDA for 2015 would be £660m, with William Hill contributing 70% of revenues and 55% of EBITDA.

The deal would substantially lessen William Hill’s exposure to the UK land-based booking sector, currently under threat of further bad news on gaming machine regulation, while adding the global market leading brand in poker to its online business.

But despite the business case positives and the upgrade in earnings, Morgan Stanley remained neutral suggesting the deal would come with increased leverage and a higher exposure to unregulated markets. According to the estimates of the analysts, William Hill’s exposure in this regard would rise from its current 4% to over 25%.

Meanwhile, as it stands Amaya would come with substantial leverage hanging over it from the original Amaya/Rational Group takeover in 2014. According to Simon French the combined net debt would stand at around the £2.5bn level, an “uncomfortable level” which would leave the company with a potential debt to EBITDA ratio of circa 3.8 times.

If the talks progress to a conclusion, William Hill will have to shift some opinion in the analyst community, many of whom were foursquare behind the recent failed Rank/888 merger bid (not least in the case of Morgan Stanley where its investment bank colleagues were on the ticket as advisors). Of those that are in on this deal, Deutsche Bank went into battle suggesting the projected cost savings - £100m according to press reports over the weekend – could lead to a “material re-rating”.

Although not quite crowning the chief executive of the combined entity, Deutsche Bank also suggested that the combined entity might have a ready-made chief executive in current Amaya chief executive Rafi Ashkenazi, who previously was chief operating officer at Playtech and who took over from David Baazov late last year. This would solve the succession issue at William Hill, which is currently heled by interim chief executive Philip Bowcock.

If it were Ashkenazi who took the reins, he would continue to address the issue of the declining popularity of poker. As Richard Stuber at Numis said, although the company controls circa 70% of the global market and means the at the barriers to entry are extremely high, it gives PokerStars less room to move into. “Whilst cross-selling sports and casino to Amaya’s poker player database may be theoretically attractive, we remain cautious based upon previous attempts by other operators,” he added. “Poker players tend to limit themselves to a single product.”

Totally Gaming says: At the very least, the news of the talks between William Hill and Amaya gives us a fuller answer over why the company was so quick to dismiss the proposal from Rank and 888. As William Hill made clear, the news broke quite early in the discussion process – suffering the same fate, it would appear, as its aforementioned suitors – but whether it has more success in moving this deal to a close will depend on persuading its own shareholders as well as those of Amaya.


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