Shareholders Scupper Amaya/William Hill Merger Talks

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Monday, October 24th, 2016 | Written by Lucy Brown

British bookmaker William Hill has had a number of setbacks in 2016, including a well-publicized merger deal with Canadian online gambling operator Amaya Inc falling apart. Commenting on the recent setback, William Hill CEO, Gareth Davis, explained during an interview with Telegraph:

“There was a lack of appetite from our shareholders to continue. On this one, in racing parlance, we barely got to the starting gate, never mind the finishing post.”

Potential Merger Deal

In early October, the gambling world lit up with rumors about a potential merger between the UK’s largest bookmakers, William Hill, and Amaya Inc, owner of the world’s biggest online poker operator, PokerStars. The industry later found out that William Hill was actually involved in “low key” merger talks with Amaya. Interestingly, a few months earlier Rank Group and 888 Holdings had joined forces to make a £3 billion takeover bid for William Hill, but ultimately the UK bookmaker walked away from the deal. As CEO Davis later explained:

“The board appreciates that synergies can be attained through mergers, but any opportunity must fit with our strategy and this proposal fell down on value, risk, strategy and leverage.”

This time around, however, William Hill was seriously interested in agreeing a deal with Amaya, but in the end the multi-billion pound agreement was eventually axed by one of the largest share holders of the company–Parvus Asset Management. The financial group owns 14.3 percent of William Hill and is known to have a major distaste for takeovers.

Shareholders Say No

Having heard rumors of the deal with Amaya, representatives of Parvus Asset Management met with the executive team at William Hill, after which they quickly released an open letter to the company, criticizing them for double standards. The letter subsequently called upon William Hill to abandon any talks with Amaya, and also stated that the move made little sense from a strategic standpoint; would cause shareholder’s assets to be diminished; and would do nothing to secure the long-term future of William Hill.

After receiving the letter, William Hill approached seven out of its eight largest share holders to solicit their opinions about the merger. When all seven agreed with the opinion of Parvus Asset Management, the company then announced its plans to abandon talks with Amaya.

CEO Frustrated By Decision

William Hill CEO Gareth Davis seems to think the share holders were wrong to stand in the way of the deal, and in an interview with the Telegraph Davis expressed frustration that the deal was not allowed to progress into the negotiating stages. Both companies also released separate press statements after the failed merger was announced, and as chairman of Amaya, Divyesh Gadhia, commented:

“Together with our financial advisors, we evaluated a wide range of strategic alternatives to maximize shareholder value and have concluded that remaining an independent company is in the best interest of Amaya’s shareholders at this time. The Board has full faith in Amaya’s management to execute on its strategy and objectives.”

Merger A Necessary Step

While Willliam Hill shareholders failed to agree to merge their company with Amaya, it is nonetheless clear that its investors will have to get used to the idea of a merger in the near future. This is because gambling companies are finding it increasingly more difficult to remain competitive on their own as they are faced with more and more regulatory restraints around the world. Already Paddy Power and BetFair in the UK have merged, and Coral and Ladbrokes are poised to do the same with a £2.3 billion deal that is in the works.

While William Hill investors may have won the battle, it’s hard to say if they might not have actually set themselves up to lose the final war, as their investments might soon be worth next to nothing if William Hill is unable to make a deal.

William Hill Financial Potential

In the first half of 2016, William Hill saw its retail revenues improve by 4%, although its online revenues dropped by 3% over the same period. The company’s operating profit subsequently fell by 16% to £131.1 million compared to the £155.7 million generated in H1 of 2015. A major contributing factor to the sharp decline was a jump in staff expenses, as well as increased company funds invested in its online business. However, the underwhelming performance by William Hill’s new smartphone app, which was plagued with bugs and not nearly as profitable as they hoped,
has resulted in the company’s stock price falling. As a result, William Hill stock is currently worth 288.10p, down from a 52-week high of 415.70p, and giving the company a market valuation of £2.50 billion.