The statement does not just reject the price expected to be offered, it challenges the entire rationale for the deal:
Having reviewed the Proposal with its financial advisers, Citi and Barclays, the Board of William Hill has unanimously rejected the Proposal as it substantially undervalues William Hill.
In addition, the Board of William Hill does not believe that a combination of William Hill with 888 and Rank will enhance William Hill’s strategic positioning or deliver superior value for shareholders compared against William Hill’s strategy, which is focused on increasing the Group’s diversification by growing its digital and international businesses.
William Hill’s preemptive attack
William Hill announced its half-year results on Friday and at that time was unable to comment at all on the proposal. Since then the Board of Directors has gotten busy with its strategic response.
Technically, William Hill had no need to respond to the consortium proposal at this time. The UK takeover rules mean that the bidders must either make a firm offer by close of business on August 21, or they are barred from making an offer for a substantial period.
William Hill has received a “proposal” but that isn’t a firm offer at this point. By making a public response at this early stage, the directors are announcing that they will oppose the takeover firmly.
As a negotiating strategy, it is a robust start to getting a much higher price, but more importantly, by identifying Rank and 888 as poor partners, other bidders may feel encouraged to come forward.
A competitive auction would provide a better price for William Hill shareholders.
The proposal values William Hill at a premium of 16 percent
The statement released the details of the Consortium’s proposal which would create a new company as the buyer, “BidCo.” 888 and Rank would merge all their shares, with 888 legally acting as the “acquiring entity” to create the BidCo.
The bid outline comprises:
- 199 pence in cash.
- 0.725 BidCo shares per William Hill share.
- An “estimated value of 364 pence per William Hill share (based on the closing price of 888 and Rank on 5 August 2016).”
- 45% of the proposed consideration would be in the form of BidCo shares.
- Bidco would take on “approximately £2.2 billion of leverage in order to fund the cash element of the consideration and refinance existing debt within the three companies.”
William Hill says that this implies a premium of only 16 percent over its quoted value on July 22, the last trading day before the takeover option was announced. Since then William Hill’s share price has risen, so the offer amounts to a premium of only 11 percent over the price on Monday of this week.
While the board didn’t specify what price would be acceptable, if any, a premium of around 30 percent is the benchmark for these types of deal.
William Hill thinks it can do better for its shareholders
Gareth Davis, chairman of William Hill, said:
“This conditional proposal substantially undervalues William Hill, is highly opportunistic and does not reflect the inherent value of the business. It is a very complex three-way combination at a low premium involving substantial risk for William Hill shareholders: execution risk, integration risk and risks of materially increased leverage.
The Group has a strong team to deliver against our strategy to grow our digital and international businesses so we strongly advise that shareholders take no action.”
William Hill referred to its half-year earnings update to point to improving performance across its businesses and “early progress in the Online turnaround.”
It is the weakness of the online business that it believed to be the main reason why the board decided to lose CEO James Henderson, even though it could be a year before a permanent replacement is found.
The statement summarized the board’s reasons for believing that William Hill is currently undervalued, and why shareholders should not be seduced away by a low bid at a time when the company has passed its low point and is heading for better times.
“The Group has clear priorities with a strong team in place to deliver its standalone strategy to increase the Group’s diversification by growing its digital and international businesses. The acquisition of the betting and gaming digital solutions company Grand Parade Limited announced on 2 August 2016 will also further accelerate the Group’s ability to innovate at speed and deliver a market leading customer experience.”
The ball is now back in the Consortium’s court. 888 has shown itself to be reluctant to overpay current prices for the promises of future growth — it left bwin.party on the table after GVC increased its bid last year.
This time it really needs to secure a merger of some form to achieve the economies of scale demanded by the industry and its investors.