William Hill price cut gives timely boost for 888

William Hill operates more than 1,400 British betting shops and has about two million active online customers in the UK. Caesars Entertainment is offloading the group’s non-US assets

Global economic turmoil and regulatory issues have cut the price of 888 Holdings’ acquisition of William Hill from Caesars Entertainment.

The gambling operator, which agreed a £2.2 billion deal with the American casino group in September, said that the enterprise value of the deal was being reduced to between £1.95 billion and £2.05 billion.

The amount it has to pay on completion of the deal has been reduced by £250 million to £584.9 million, with the payment of up to £100 million being deferred until 2024, dependent on the level of adjusted earnings achieved by the enlarged group.

888 has also discarded its previous plan to raise about £500 million of new equity via a capital raise and will instead issue up to 70.8 million new shares — equating to about 19 per cent of its share capital — through a placing at 230p to raise £163 million.

Investors in 888 breathed a sigh of relief at the news as there had been fears that the halving of the share price since the deal was announced could scupper the capital-raising and possibly even the acquisition itself. The shares leapt by nearly a third in morning trading yesterday and closed up 16.8 per cent, or 32¼p, at 224¼p.

The company said that the revision to the terms of the deal “reflects the change in the macroeconomic and regulatory environment since the announcement of the acquisition, as well as compliance factors impacting the William Hill business”.

Chart: The Times and The Sunday Times Source: Refinitiv

The revised offer has revealed that William Hill is subject to a continuing licence review by the Gambling Commission relating to social responsibility and anti-money-laundering obligations. William Hill has booked a provision of £15 million to cover possible fines, although Caesars has agreed to indemnify any losses and costs from the licence review up to £150 million.

It also has emerged that William Hill provided inaccurate data when the Gambling Commission decided to conduct an analysis of the impact of the pandemic on gambling behaviour. 888, which was fined £9.4 million in 2020 for its failings over social responsibility and money laundering, said that the commission was reviewing the regulatory consequences of William Hill’s failure to submit accurate data.

William Hill was taken over a year ago by Caesars Entertainment in a £2.9 billion deal, but the Las Vegas casino operator had made clear that it wanted only the British group’s American operations and would sell the rest. In the final round of bidding for the unwanted assets, 888 saw off Apollo Global Management.

The FTSE 250 gambling operator is acquiring a brand that was founded in 1934 and today operates more than 1,400 British betting shops and has about two million active online customers in the UK. 888’s main territories in Europe are Italy, Spain and the Nordic countries, while it recently was launched in Latin America.

The company said that, despite the economic impact on William Hill of Covid-19, the deal remained “highly compelling” from a strategic and financial perspective. The enlarged company would generate £5 million of cost synergies this year, gradually building up to savings of £100 million in 2025, it said. It will have more than 12,000 employees.

The 888 business, which was floated in London in 2005, was founded in 1997 by two Israeli families, the Shakeds and the Ben-Yitzhaks. The Shakeds remain the biggest shareholders, with a 23.2 per cent stake. The group offers online casino games, poker, bingo and sports betting. In June, it signed a deal with the media group behind Sports Illustrated magazine.

Analysis: A seat at the top table Revising an agreed acquisition price downwards rather than upwards does not happen very often but Itai Pazner, the 888 chief executive, knew he had a strong hand and could afford to cut the terms of the William Hill deal signed more than six months ago (Dominic Walsh writes). “Circumstances have changed since September,” he said. “The market has changed, the world has changed.”

The leap in the share price when the revised deal was announced suggested strong approval for the new cut-price terms — down from an enterprise value of £2.2 billion to a range of £2.05 billion to £1.95 billion depending on an earnout. But given the estimated price tag of £1.5 billion when the business was put up for sale, it is a stretch to call even the revised figure a bargain.

Pazner, 47, does not demure, insisting that 888 paid what it needed to land the “transformational deal”. He added: “It was a bidding process and when there’s a bidding process you never get a bargain, but it was a fair deal.”

The prize is a seat at the top table of gambling operators alongside the likes of Flutter Entertainment (Paddy Power, Betfair, Sky Bet), Entain (Ladbrokes, Coral and Sportingbet) and Bet365. After years of being seen as a tasty target for predators, it also moves 888 firmly into the predator camp and Pazner was quick to make that clear. “M&A is part of our strategy,” he said.

The 888 boss was also adamant that William Hill’s 1,407 betting shops, despite all the speculation, will remain a core part of the enlarged company. “Retail is a very successful part of the formula. It is cash-generative and contributes a lot to the heritage of the William Hill brand.”

Some might suggest that buying a business with a big UK component when a punitive new regulatory regime is imminent might seem foolhardy, but the Israeli insisted he had no second thoughts. “The logic of the deal and positioning us as a top operator in the UK is absolutely the right strategic move for us. In some ways a tougher regulatory regime can help. Consolidation is inevitable.”