William Hill Threatens Scientific Games Takeover of NYX Gaming; Possible Court Battle Looms
William Hill plc has filed a legal complaint that seeks to disrupt the acquisition by Scientific Games in September of NYX Gaming. William Hill, a minority shareholder in NYX Gaming, has threatened to convert a sizable minority sharehold in NYX preferred stock that could scuttle the proposed acquisition of NYX altogether. That possible scuttling comes despite the fact that NYX is an active partner in its deal with Scientific Games, and wants to continue moving forward, with an official approval vote slated for mid-December.
This little battle of corporate one-upmanship has more at stake than just ownership of NYX. NYX is a prominent player on the B2B side of the industry, offering several prominent software platforms to a clientele that includes many of the online-gambling world’s largest players. Among them is NYX’s sports-betting solution, Open Bet, which could see its fortunes spike skyward if next month’s important US Supreme Court hearing in the New Jersey “Christie II” over sports betting’s legality goes New Jersey’s way, and ends up prying open the New Jersey market.
William Hill has been accused by NYX and Scientific Games of having made extortionate demands in an attempt to scuttle the deal or make it financially unattractive, even at an obvious cost to NYX shareholder itself. NYX has filed a complaint in New Jersey that William Hill has threatened to acquire more stock in NYX and to convert its preference shares to voting stock, and indeed, William Hill has already filed notice as to the latter.
That conversion would give William Hill 32% of the voting stock in NYX, meaning that the company would have a reasonable chance of blocking the Scientific Games buyout. But there’s far more to it, and to why NYX is fighting hard: William Hill is willing to inflict a loss on all of NYX’s current shareholders by converting the outstanding preference shares. The conversion would deny NYX shareholders a premium created by the Scientific Games offer and instead make William Hill “lose approximately $50M and perhaps even more than double the amount.” It’s apparently a $50M pill that William Hill is willing to swallow in an effort to keep NYX out of Scientific Games’ hands.
Due to claimed regulatory restrictions, NYX claims it cannot allow William Hill to convert the hefty bloc of preference shares, which is why a court battle over the acquisition now looks like the probable outcome of the tiff. It all led to a trade of heated press releases late this week from NYX and William Hill. The NYX Gaming presser was much the longer of the two, but here are the highlights:
LAS VEGAS — The Board of Directors of NYX Gaming Group Limited has received a notice (“Notice”) from William Hill Steeplechase Limited (“William Hill”) requesting that its convertible preference shares be converted into ordinary shares of NYX not later than December 4, 2017, to enable William Hill to vote in connection with the proposed acquisition (“Acquisition”) of NYX by Scientific Games Corporation (“Scientific Games”) “in order to protect the rights and interests of William Hill.”
William Hill has been in negotiations with Scientific Games with respect to a potential commercial arrangement following the Acquisition, and has previously stated that William Hill requires terms, including rights to a copy of NYX source code and certain anti-competitive arrangements in US jurisdictions, among other demands, in exchange for voting in support of the Acquisition. William Hill indicated that if Scientific Games does not reach a commercial arrangement, it “will vote against and therefore effectively block” the Acquisition. Prior to receiving the Notice, William Hill indicated that it would make public statements to the effect that “William Hill has concerns” with the Acquisition and “is considering its options” including acquiring further NYX ordinary shares or converting its convertible preference shares to vote in connection with the Acquisition.
No agreement has yet been reached between William Hill and Scientific Games. The Acquisition offers NYX’s shareholders C$2.40 per ordinary share of NYX, in cash, which represents a 112% premium to the closing price of NYX’s ordinary shares on the day prior to the Acquisition’s announcement. Subject to the terms of the convertible preference shares, as of November 6, 2017, William Hill would be entitled to elect to convert such shares into ordinary shares of NYX at an approximate conversion price equivalent to approximately C$3.67 per share, which represents a loss of approximately C$49.7 million to William Hill immediately upon such conversion.
. . .
NYX’s Board is consulting its financial and legal advisors, and will continue to act in the best interests of all of its shareholders. NYX is closely following the negotiations between Scientific Games and William Hill, but is focused on closing the Acquisition.
Based on certain regulatory and licensing restrictions, NYX’s Board cannot convert the preference shares at this time. NYX is considering all options available to it, including whether William Hill’s conduct could have any impact on NYX’s gaming licenses (and therefore whether William Hill is suitable to hold NYX ordinary shares), and bringing appropriate legal action or actions against William Hill to protect NYX shareholders.
The NYX Board also reaffirms its unanimous determination that the terms of the Acquisition are fair and reasonable and are in the best interests of NYX and its shareholders and its unanimous recommendation that NYX shareholders vote in favor of the Acquisition.
The shareholder meeting is scheduled to be held in Las Vegas on December 11, 2017 and the record date for voting is December 7, 2017 (5:00 p.m. Pacific time). …
Here’s the return volley by William Hill, which both responds to the NYX statement and confirms that William Hill has filed a conversion notice regarding its bloc of convertible preferred shares in NYX:
GIBRALTAR, Nov. 8, 2017 /CNW/ – William Hill Steeplechase Limited (“William Hill”) notes the announcement by NYX earlier today of its apparent determination to frustrate the contractual rights William Hill obtained when it enabled NYX to purchase OpenBet. To correct two assertions made in the NYX announcement, William Hill is considering the proposed acquisition of NYX by Scientific Games Corporation and no decision has been made at this time, and William Hill refutes in the strongest terms that any anti-competitive measure have been requested or is being demanded. William Hill confirms that it has issued a conversion notice to convert its holding of convertible preference shares and has commenced legal action in order that it may also vote such shares at the special meeting of shareholders. William Hill does not wish to make any further comment on those proceedings at this time, other to confirm that it will continue to act in the best interests of its shareholders.
William Hill owns and controls 6,800,000 ordinary shares of NYX and £80 million of preference shares of NYX Digital Gaming (OB SPV) Limited, an indirect wholly-owned subsidiary of NYX, initially convertible into approximately 40,723,339 ordinary shares of NYX (based on an initial conversion price of C$3.67 per ordinary share). Following the conversion of the preference shares, William Hill will own and control 47,523,339 ordinary shares of NYX, or approximately 31.9% of the ordinary shares of NYX.
This one is likely to get interesting in a hurry. Expect NYX to continue to fail to honor William Hill’s notice of conversion, with William Hill then filing for an injunction of some form, on or shortly after December 4th.