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William Hill - Board rejects offer

Nicholas Hyett | 10 August 2016 | A A A
William Hill - Board rejects offer

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The Board of William Hill has unanimously rejected a revised proposal from Rank Group and 888 Holdings.

The proposal, which envisages an all-share merger of 888 and Rank to form the acquiring entity (BidCo), consists of a 199p cash component and improved 0.860 BidCo shares (previously 0.725) per William Hill share. The deal would see William Hill shareholders owning 48.8% of the combined group.

The offer values William Hill at 352p per share and represents a premium of 12% to the share price on 22 July, the day before the announcement of a possible offer.

Commenting on the deal, William Hill Chairman Gareth Davis said:

"This revised proposal continues to substantially undervalue the company and the cash element of the proposal has not changed. Therefore, the Board sees no merit in engaging. As we have said before, this is highly opportunistic and complex and does not enhance the strategic positioning of William Hill."

888 and Rank have until the 21 August to either announce a firm intention to make an offer for William Hill or announce that it does not intend to make an offer.

Our view:

Despite the recent trend for consolidation in the gaming sector, we're unsurprised that the William Hill board has rejected the 888 and Rank approach.

Although 888's digital expertise would undoubtedly be attractive to William Hill's struggling online division, it's difficult to see how Rank, as a largely bricks and mortar casino and bingo hall operator, fits into the mix. Moreover, the group is in the midst of attempting to turn around WilliamHillOnline on its own, with the recent acquisition of Grand Parade adding new digital capacity and expertise.

The deal itself would be hugely complex and require BidCo to take on £2.2bn of leverage (more than the combined value of Rank and 888) which would leave the combined group heavily indebted. Throw into that a fairly unexceptional premium and it's easy to see why the William Hill board saw more risks than opportunities.

888 and Rank could yet choose to roll the dice with an improved offer or hostile bid (going over the board's head and straight to shareholders). From the tone of today's announcement though the William Hill board look set to fight them all the way.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.

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