888 Holdings, Rank Group £3.2 Billion Offer for William Hill Rebuffed

UK-based gaming giant William Hill announced today that it has received a multi-billion pound acquisition proposal from 888 Holdings plc and The Rank Group plc. In the same public statement, William Hill also announced that its Board has rejected the offer and urges its shareholders to do the same.

News of the potential bid broke a couple weeks ago when 888 and Rank (or the “Consortium” as they called themselves) confirmed rumors that they were working on a possible offer for William Hill.

888“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,” the statement read at the time.

And so it is that the Consortium made a £3.2 billion ($4.2 billion) offer to William Hill. According to the press release issued by William Hill, the proposal begins with a merger of 888 and Rank into a new company called BidCo. BidCo would then offer 199 pence per share of William Hill and .725 BidCo shares per share of William Hill. Based on the closing prices of 888 and Rank last Friday, the total package adds up to an offer of 364 pence per share of William Hill.

Existing William Hill shareholders would own 44.6 percent of the newly formed company.

The William Hill Board was less than thrilled with the offer, though. Said Gareth Davis, Chairman of William Hill:

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.

As far as that undervaluing goes, William Hill said in the press release that the offer is just a 16 percent premium over its 314 pence share price on July 22nd, which was the day before 888 and Rank announced their intention of bidding on Will Hill. As yesterday’s closing price was 327 per share, the offer now only represents an 11 percent premium.

The rejection of the bid by the Board does not necessarily mean that the deal won’t happen, as shareholders could still approve it, but that is an extremely unlikely development. It would require enough shareholders that add up to a controlling interest in the company to all go against the Board, something that just won’t happen.

It is interesting to note that William Hill actually tried to buy 888 Holdings early last year.

From here, it is possible, and maybe probable, that the Consortium will increase their price and hope it is enough to mitigate other, non-financial concerns that William Hill may have. Alistair Ross, an analyst at Investec in London, told Bloomberg.com that he thinks the price will have to be upped to at least 400 pence per share.

“I don’t think they will have the cash or the clout to get this deal done,” he said of 888 and Rank.

William Hill’s entire statement regarding the bid is below:

The Board of William Hill PLC (“William Hill” or the “Group”) confirms that it has received an unsolicited non-binding highly conditional proposal (the “Proposal”) from 888 Holdings plc (“888”) and The Rank Group plc (“Rank”) (together the “Consortium”) regarding a potential combination of the three companies.

The Proposal envisages an inter-conditional all-share merger of 888 and Rank, with 888 acting as the acquiring entity, to create BidCo, which would contemporaneously offer to acquire William Hill for cash and newly issued shares in BidCo.

The Proposal comprises 199 pence in cash and 0.725 BidCo1 shares per William Hill share, and would result in William Hill shareholders owning 44.6% of the Combined Group. The Proposal represents an estimated value of 364 pence per William Hill share2 (based on the closing price of 888 and Rank on 5 August 2016) with 45% of the proposed consideration in the form of BidCo shares. The Proposal represents a premium of only 16% to the William Hill share price of 314 pence on 22 July 2016 (being the last trading date prior to the announcement of a possible offer by the Consortium) and a premium of only 11% to the William Hill share price of 327 pence on 8 August 2016 (being the last trading date prior to this announcement).

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.

The Board of William Hill has also taken into consideration the substantial risk for William Hill shareholders presented by the Proposal, which involves a highly complicated three-way combination at a low premium with BidCo assuming approximately £2.2 billion of leverage in order to fund the cash element of the consideration and refinance existing debt within the three companies.

As demonstrated by the Group’s half year results published on Friday, 5 August 2016, William Hill is delivering an improved performance across its businesses with early progress in the Online turnaround, Retail net revenue growth of 4%, Australia turnover growth of 12% and US operating profit growth of 49%. 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.

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.”

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, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended with the consent of the Panel in accordance with Rule 2.6(c) of the Code.

This announcement is being made without the approval of the Consortium.

There can be no certainty that a transaction will be forthcoming or as to its terms. William Hill shareholders are strongly advised to take no action.

The person responsible for arranging for the release of this announcement on behalf of William Hill is Philip Bowcock.

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