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The regulatory announcement said that “they are evaluating a possible offer,” the first step in making a bid under the U.K.’s takeover rules.
The combination of 888 and Rank describes itself as a Consortium, but no details are yet available as to the precise nature of the relationship between the two companies.
The official statement which each put out on their corporate websites, in advance of a regulatory midday deadline on Monday said:
“The Consortium sees significant industrial logic in the combination, through consolidation of their complementary online and land-based operations, delivery of substantial revenue and cost synergies and from the anticipated benefits of economies of scale which will accrue to all shareholders.”
William Hill and 888 have a history when it comes to takeover bids. In February 2015, it was William Hill making the running with a bid for 888 that valued the company at 210p per share, a 30 percent premium on the quoted price at the time.
The bid failed to make headway with 888’s major shareholders, Avi and Aaron Shaked, and Shay and Ron Ben-Yitzhak, who control around 60% of the company through family trusts.
The corporate situation has now reversed itself. 888 is now trading at 230p per share after a 4 percent increase immediately following the announcement.
William Hill’s share price rose over 6 percent on the announcement, but its total market capitalization at £2.9 billion ($3.8 billion) remains more than 12 percent below the £3.3 billion ($4.3 billion) it reached at the time of the offer for 888.
To win the support of William Hill shareholders, 888 and Rank will probably have to get their offer somewhere between £3.7 and £4 billion ($5.25 billion).
There is an old corporate aphorism, that “the time to buy is when there’s blood in the streets.” Figuratively speaking that is the position that William Hill is now in.
Since its bid for 888 its share price has slid relentlessly downwards, with the result that CEO James Henderson “stepped down” from his post last week, with no replacement having been selected.
The corporate ousting is believed to be because of poor online sports betting performance and because William Hill is losing ground against its recently merged rivals, Paddy Power Betfair and Ladbrokes Gala Coral.
On Henderson’s appointment, in July 2014, Chairman Gareth Davis described him as a “natural bookie.” As it tuned out, the company needed more than a natural bookie with 29 years of experience to steer William Hill through the high technology environment of modern gambling.
William Hill put out its own statement on Sunday pointing out that it does not see the corporate rationale for the takeover.
“The Board of William Hill would listen to and consider any proposal which might be forthcoming from the Consortium. 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.”
William Hill has thousands of betting shops in the U.K. and employs over 16,000 people globally. It is the largest brick and mortar betting company in the U.K. with around a 25 percent market share.
888 is a pure online company, specializing in online poker, casino and sports betting. It has no experience or real interest in owning the land based gaming business that William Hill has developed since its foundation in 1934.
The partnership with Rank makes complete sense from the perspective of both parties.
Rank operates Grosvenor Casinos (56 casinos), Mecca Bingo (96 bingo clubs) and Rank Interactive (online gaming and betting), however it also operates additional Grosvenor Casinos clubs in Belgium (two casinos), and Top Rank España in Spain (10 bingo clubs).
The eventual corporate outcome seems to be a division of William Hill into the online parts which 888 wants and the land based business which will allow Rank to compete with Ladbrokes and Gala Coral on Britain’s high streets.
William Hill built its online business as a joint venture with Playtech. In March 2013, Will Hill bought out Playtech’s 29 percent stake for £424 million ($556 million), but it remains one of Playtech’s biggest customers.
William Hill online poker uses Playtech’s iPoker platform, but if 888 becomes the new owner, it will undoubtedly move players to its own platform to add liquidity.
888 is the second most popular online poker room in the world behind PokerStars, but even so, its cash game traffic has not been immune to the global decline.
The addition of the current William Hill player pool will help boost liquidity at 888, and send further trouble the way of iPoker. In June, according to Poker Industry Pro via PokerScout data, iPoker’s dot-com cash game traffic dropped below an average of 1,000 occupied seats for the first time since 2006. It can ill afford to lose one of its major customers.
William Hill’s relationship with Playtech extends beyond online poker, but notably, today’s news did not affect Playtech’s share price, even though a completed deal would hit their revenues to a noticeable extent.
One aspect of the deal which doesn’t fit too neatly into the split between 888 and Rank may be William Hill’s sports betting business in Nevada.
William Hill operates sports books for several land based casinos in Nevada. In 2011 it bought Lucky’s, Leroy’s, and the satellite operations of Club Cal Neva, for a total of $53 million. All were rebranded to William Hill, and gave the company a market share of more than 50 percent.
888 has a substantial U.S. business providing the online poker software for the Delaware racinos, and for WSOP.com in New Jersey and Nevada. It also operates under its own brand in New Jersey, but despite announcing its intentions to do so, has held off entering the Nevada online poker market.
Rank has nothing in the U.S. at all, so who will takeover the non-online U.S. business if the deal goes through? Perhaps they will be put up for sale after the deal completes.
One of the most interesting deductions to be made from 888’s announcement is that it is almost certainly not considering a simultaneous bid for Amaya.
Amaya’s board has said that it is talking to several parties regarding a bid, and 888 was seen as a natural bidder for the parent of PokerStars and Full Tilt. Now that that possibility is off the table, only Playtech remains as a possibility from the ranks of the top online poker operators.
If former CEO David Baazov fails to make a bid, then PokerStars’ new owner may well be a company with no, or little previous presence in online poker.
Bet365 is probably the only serious online poker operator left that could muster the financial fire power for a bid to buy Amaya, and it has shown no real interest in either acquiring or being acquired by another company.
Last year, 888 lost the deal to buy bwin.party after GVC outbid it for the company. Taken together with the refusal to accept William Hill’s offer in February 2015, analysts may consider that 888 has a high opinion of its own value, but is extremely reluctant to pay a high premium for anything it wants to purchase.
The family ownership of a majority of 888’s shares also means that there is a large voting block which can veto any transaction.
When such a large proportion of shares is owned by a small family group of investors, there is always the possibility of irrational decision making—price isn’t everything when it comes to a family business.
Rank would not have agreed to form part of a consortium with 888 if it had not been reassured that it was committed to doing the deal. Nevertheless, if William Hill shareholders hold out for a high price, 888 may well reconsider its position.
William Hill pointedly quoted the U.K. Takeover Panel’s “put up or shut up” rule in its statement regarding the potential bid.
“In accordance with Rule 2.6(a) of the Code, the Consortium is required, by not later than 5.00 p.m. on 21 August 2016 to either announce a firm intention to make an offer for William Hill in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer….”
For 888 and Rank, the regulatory clock is now ticking.