William Hill’s rejection of the takeover proposal stated that the bid was too low, and would not “enhance William Hill’s strategic positioning or deliver superior value for shareholders compared against William Hill’s strategy.”
The statement put out by 888 and Rank — known as the Consortium for the purposes of the takeover bid — is a direct rebuttal of this position.
The UK’s Daily Telegraph quoted Henry Birch, chief executive of Rank:
“To us, this combination is blindingly obvious.”
888 CEO Itai Freiberger said that “the price is something we can discuss.”
Under the proposal, Birch would become the merged group’s CEO with Freiberger taking the role of CEO Digital. Birch was formerly the head of William Hill Online.
888 and Rank see a clear business rationale
According to Birch, the first approach to William Hill was made informally in November of last year, and the first bid plans began in April, after William Hill issued a profit warning.
The deal highlights on which the Consortium want William Hill shareholders to focus include:
- “Creates a significant and transformational force in the global betting and gaming industry and the UK’s largest multi-channel gambling operator by revenue and profit with a complementary combination of retail and digital brands and proprietary technology, content and products across sports betting, casino, poker and bingo;”
- “Significantly enhanced scale and diversification allowing significant cost and revenue synergies, increased marketing effectiveness, effective entry into new markets, and mitigation against any adverse regulatory change;”
The business case also presents significant synergies, including:
- Substantial additional revenue synergies arising from multi-channel, cross-selling, rebranding and customer experience optimization.
- Resultant capital structure appropriate for a FTSE 100 company, with a healthy dividend policy and a rapid deleveraging profile.
- Expectation of rapid deleveraging resulting in management expectations of net debt to EBITDA between 2.5x – 3.0x in 2018.
- Management expectation of a dividend policy of approximately 40 percent payout ratio.
- Re-rating potential supported by recent precedent transactions in the gaming sector, and expectations of enhanced top-line growth from revenue synergies.
£100 million of cost savings
The Consortium has identified £100 million ($130 million) in cost savings that will result from the merger.
This figure is backed up by accountants Ernst & Young, whose report is attached as an annex, and by investment bank Morgan Stanley, whose opinion that the figures “been prepared with due care and consideration,” is also attached.
The main savings are expected to come from:
- Reduction in fees payable to third parties as well as IT platform cost savings arising from the consolidation and de-duplication of gaming and sports betting operations.
- Integration of digital teams following migration to form a common technology platform.
- Marketing spend optimization across brands and more effective utilization of digital marketing and CRM to improve customer acquisition, retention and revenue per customer.
- Leveraging consolidated payment volumes to attract better rates from payment service providers.
- Consolidation of corporate and central costs including public company overheads, contact centers and other support functions.
The savings will accrue over three years and be complete by the end of 2020, under the assumption that the merger is complete by the end of 2016.
A battle royale is now in sight
The statement by William Hill which rejected the bid appeared to be a “preemptive attack.” The 17 pages of the Consortium’s statement can be considered to be a counter-attack in force.
The next few weeks are likely to see plenty of action as the two sides muster their forces.
The Consortium states that the main shareholders of 888 and Rank, holding 50.7 percent and 56.1 percent respectively, are all in favor of the proposal, “substantially mitigating execution risk.”
The statement demanded that the William Hill board provide “a unanimous and unqualified recommendation and the provision of hard irrevocable undertakings in favour of the transaction from the directors of William Hill (and their connected persons) who are also shareholders.”
It also demanded that the board agree to an extension to the Takeover Panel imposed deadline of August 21 by which time 888 and Rank must announce a firm offer or withdraw.
The Consortium has in effect given the William Hill board only two working weeks to agree to the preconditions, setting a deadline which will not allow much time for disruptive tactics.
William Hill may be able to reject the first of these conditions, but rejecting the extension may meet with shareholder disapproval. Investors would rather see a real offer on the table, than reject one out of hand without knowing what can be achieved by extended negotiation.
A third option remains a possibility, if another bidder decides to step up and get involved.
Should the deal go ahead, the UK will have a sports betting giant, a member of the FTSE100 list of the UK’s largest companies, and an international powerhouse in the regulated gaming industry.
The merged group would have a combined marketing spend in excess of £300 million ($389 million), with 92 percent of revenues coming from regulated markets.