The present trend for mergers and takeovers in the gambling industry moved another step forward over the weekend as 888 Holdings and The Rank Group announced their intention to bid for William Hill.
The news came just days after William Hill disposed of CEO James Henderson, who stepped down “with immediate effect.”
Under UK Takeover Panel rules, Monday, July 25 — when 888 and Rank simultaneously published the regulatory news notice of their possible bid — is the official start date of a “put up or shut up” period.
Rank and 888, self-described as the “Consortium,” now have until August 21 to place a real bid on the table.
The deal makes “significant industrial logic”
Rank and 888 see “significant industrial logic in the combination,” according to their joint statement. They plan to consolidate “their complementary online and land-based operations,” and expect to see “substantial revenue and cost synergies” from the economies of scale possible following the takeover.
Rank is primarily a land-based operation, owning 56 casinos and 96 bingo clubs although it does have its own online operation, Rank Interactive. It is almost entirely UK-based, apart from two casinos in Belgium and 10 Bingo clubs in Spain.
888 is the opposite; it is an entirely online operation offering sports betting, casino and online poker on its own proprietary platform.
However, it doesn’t sound like the ultimate plan is for Rank, 888 and William Hill to emerge from this process a single combined company.
The regulatory notice of the possible bid for William Hill made no mention of any intention to merge 888 and Rank, and in describing the partnership as a consortium, they have effectively denied an intention submit a merger plan to their shareholders.
Of course they could still do so in the future.
888 and Rank may split William Hill between them
The more likely outcome may be a carve-up of William Hill, where 888 picks up all of the online businesses, and Rank takes the UK land-based businesses.
William Hill is a major online sportsbook, operating across many of Europe’s regulated markets as well as offering a global dot-com product.
In the UK, it has well over 2,000 high street betting shops, an asset that Rank could use to expand its land-based operations and credibly compete with Paddy Power Betfair and the soon-to-be merged Ladbrokes and Gala Coral.
William Hill’s Nevada sportsbook business may go to 888
The few businesses that don’t fit neatly into the respective companies’ business strategies could be sold off. This could well be the fate of William Hill’s Nevada sports betting operation.
In 2011, William Hill bought three major sportsbooks, merged and re-branded them, to take a market share of over 50 percent. The sportbook services it provides to Nevada land-based casinos could be surplus to requirements.
Rank has no US business interests, and 888 may not see the Nevada operation fitting into its US strategy. On the other hand, William Hill’s strong position in mobile sports betting could complement 888’s position as the poker client provider for WSOP.com Nevada.
Put the two together, throw in the possibility that Nevada could allow online casino games in the near future, and 888 might decide that the time is right to launch its own branded online poker and sport betting operation in Nevada’s regulated market.
William Hill’s Australian business would extend 888’s reach down under
William Hill is also a major sportsbook operator in Australia. In 2013, it bought Sportingbet, Centrebet and Tom Waterhouse, and combined them together under the William Hill brand.
888 is a well-known brand in Australia, but adding on the William Hill business would both extend and consolidate its market position.
William Hill is at a low point in its fortunes
In February 2015, William Hill made its own bid for 888. The bid failed because one of the major shareholders didn’t think the price offered was good enough.
At the time, William Hill was offering 210p per share, a 30 percent premium to the price at which 888 was trading. Today, 888 trades at over 230p per share, so rejecting the deal has made a lot of money for 888’s shareholders.
Since then, William Hill’s share price has cratered. It has lost roughly £400 million in value. Even after its stock rose following the announcement on Monday, its market capitalization is still only £2.9 billion—down from the £3.3 billion at the time it tried to buy 888.
Last week the board of directors announced that CEO James Henderson was leaving the company. The standard gratitude and thanks were expressed in the statement, but it was clear to all that William Hill’s poor performance relative to the sector was the primary reason for his exit.
The bid from Rank and 888 has come at a time when the company is at a low point, but that doesn’t mean that it lacks confidence, or that it will accept a low bid.
William Hill not quite as sure that a sale makes sense
The William Hill board of directors issued a statement almost immediately after the bid announcement, and although they said, as they are obliged to do, that they would consider any offer, they made it plain that they didn’t like the deal.
“However, it is not clear that a combination of William Hill with 888 and Rank will enhance William Hill’s strategic positioning or deliver superior value to William Hill’s strategy which is focused on increasing the Group’s diversification by growing its digital and international businesses.”
The board made deliberate reference to the “put up or shut up” rules, almost defying 888 and Rank to come up with a real bid.
A 30 percent premium to Friday, July 22’s share price would set a price of 406p per share, implying a market cap value of over £3.5 billion ($4.6 billion).
William Hill’s board may well think that choosing a credible new CEO could add almost as much to the company’s value, so a successful bid is likely to have to be somewhere north of that figure.
Will it all happen?
Putting together a three-way deal is way more difficult than going it alone, so there will need to be real harmony of purpose between 888 and Rank if the two companies are to stay the distance.
William Hill is almost inevitably going to reject the first offer Rank and 888 make. The two companies then have to agree a negotiating strategy which may be further complicated if another bidder enters the contest.
In one respect there is likely to be less competition — most of their competitors have already merged or been taken over. Nevertheless, in corporate life, the unexpected is to be expected, and another buyer could see value in William Hill.
A lot will depend on William Hill’s shareholders’ confidence. After two years of declining share prices, support for the board of directors may be fragile. If the board gets too confident in rejecting a bid that shareholders feel is acceptable, it may discover that its support is very thin.
Is the deal right for 888 and Rank? That’s a harder question to answer, and depends very much on how the final offer is structured, and what the disposition of William Hill’s assets would be in the event of success.
August 21 is the deadline for 888 and Rank to put together a deal that will not only make William Hill’s board think seriously, but also convince their own shareholders that the bid makes financial and strategic sense.
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