William Hill Suitors Put Case for $4.2 Billion Bookmaker Bidby
888, Rank see more than 100 million pounds of cost savings
Rank CEO Henry Birch would lead combined gambling company
888 Holdings Plc and Rank Group Plc presented the case for their rejected 3.2 billion-pound ($4.2 billion) offer for U.K. bookmaker William Hill Plc, laying out advantages including annual cost savings of at least 100 million pounds.
The proposed combination of the three companies would provide opportunities to boost revenue through cross-selling of products and moving more customers online, the bidders said in a statement Wednesday. The enlarged group would be run by Rank Chief Executive Officer Henry Birch, a former head of William Hill’s online business.
The suitors have until Aug. 21 to make a formal offer for William Hill, which has said their proposal substantially undervalues the biggest U.K. bookmaker. Most analysts say they will have to pay more than their initial bid of 364 pence a share in cash and stock. The potential takeover would mark a step up in betting industry deals that have included the pending merger of competitors Ladbrokes and Coral, and the combination of Paddy Power and Betfair.
Rank and 888 said the combined group would be Britain’s largest gaming company across all platforms, including William Hill betting shops, Mecca and Grosvenor bingo halls and online wagering sites. The company would likely be a constituent of the U.K.’s FTSE 100 Index, they said.
“888 and Rank believe the proposal represents a compelling value creation opportunity for William Hill,” said the suitors, who are being advised by Morgan Stanley. They are seeking talks with William Hill’s board with the aim of securing a recommendation.
The takeover proposal is backed by both the main shareholders of 888 and Rank, the companies said. Malaysia’s Hong Leong Co. owns 56.1 percent of Rank, while Israel’s Shaked and Ben-Yitzhak families hold 50.7 percent of 888.
The bidders sought to downplay concern over the highly leveraged nature of the takeover, saying that they expect to reach a net debt-to-Ebitda ratio of 2.5 to 3 times in 2018 after a “rapid” reduction of borrowings.
William Hill had cited both the price of the offer and the risk presented by a potential 2.2 billion pounds of additional debt as reasons for rejecting the “highly complicated” bid.
The bidders are likely to have to raise their offer to “well over” 400 pence a share, according to Simon French, an analyst at Cenkos Securities. The cash component would need to be increased by at least 40 pence a share to be considered, he said.
The proposal from 888 and Rank comprises 199 pence a share in cash and 0.725 shares in the bidding company. William Hill investors would own 44.6 percent of the combined entity, which would have annual revenue of about 2.7 billion pounds and earnings before interest, tax, depreciation and amortization of about 500 million pounds.
William Hill fell 1.4 percent to 324.5 pence at the close of London trading Wednesday, giving it a market value of 2.82 billion pounds. 888 declined 1 percent to 217 pence, and Rank edged down 1.6 percent to 207.7 pence.
While Birch would lead the enlarged company, 888 CEO Itai Frieberger would become head of digital operations, the companies said.
They also set out an expectation to pay 40 percent of earnings in the form of dividends.
Achieving the estimated cost savings will lead to one-time expenses of about 69 million pounds, which would be incurred mainly in 2017 and 2018, they said.