- Shares drop 27% after internal probe
- Investigation isolated to Middle East
- Firm is now without a CEO or CFO
Shares in betting and gaming company 888 Holdings (888) fell 27% to 76p on Monday after chief executive Itai Pazner resigned following an internal probe into some of its VIP operations.
The timing couldn’t have come at a worse time for the company which is in the early stages of integrating the transformational William Hill International acquisition and whose chief financial officer Yariv Dafna agreed to step down only two weeks ago.
Executive chairman Lord Mendelsohn, who will act as interim chief executive, commented: ‘The Board and I take the Group's compliance responsibilities incredibly seriously.
‘When we were alerted to issues with some of 888's VIP customers, the Board took decisive actions. We will be uncompromising in our approach to compliance as we build a strong and sustainable business.’
WHAT HAPPENED?
An internal compliance review has identified that best practices in AML (anti-money laundering) and KYC (know your client) have not been followed with respect to clients designated as VIPs (very important persons) in the Middle East region.
While further investigations are conducted the board have taken action to suspend the affected activities, which represent less than 3% of total company revenues. The board believes the deficiencies are ‘isolated to this region only.’
Pazner has been with the group for more than 20 years and with the two top executives now absent (Dafna will leave on 31 March) investors will be keen to see quick progress on finding replacements.
At the capital markets day on 29 November last year the company upgraded its synergies target from the William Hill acquisition by £50 million to £150 million by fiscal 2025.
The acquisition burdened the group with £1.7 billion of net debt and the focus is to reduce the firm's gearing to less than 3.5 times EBITDA (earnings before interest, tax, depreciation, and amortisation) by 2025.
WHAT ARE THE EXPERTS SAYING?
AJ Bell investment director Russ Mould commented: ‘Gambling stocks are under enough regulatory scrutiny as it is without inviting reasons for further attention and yet that’s exactly what 888 has done.
‘News it is suspending VIP accounts in the Middle East over best practices not being followed over money laundering is incredibly damaging.
‘Combine that with the announcement of chief executive Itai Pazner’s immediate departure and the market is likely to draw its own conclusions.
‘A brief and to-the-point statement with the usual pleasantries doesn’t indicate the reason for his exit, leaving the obvious supposition that this debacle is to blame.
‘Investors may have been more reassured by him staying in place to sort out the problems in the Middle East - an unenviable task which will now fall to the newly ‘executive’ chair Jon Mendelsohn.’
Disclaimer: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (Ian Conway) own shares in AJ Bell.
