- 888 rejected a 156p per share offer from Playtech
- Potential cost savings of £170 million
- Jefferies estimates deal could add 20% to combined profit
Shares in William Hill owner 888 Holdings (888) jumped as much as 18% on Monday to 84p after The Sunday Times revealed the gambling firm received a takeover offer from gambling technology company Playtech (PTEC) at 156p per share back in July.
Playtech shares gained nearly 3% to 428p. The company is primarily a business-to-business platform, content, and service provider to online gambling companies. It also owns a consumer facing business called Snaitech.
DISGRUNTLED SHAREHOLDERS
888 shareholders are probably displeased to have learned that discussions with Playtech were not made public given the shares have dropped around 42% since July and the company issued a profit warning less than two months after rejecting the offer.
Executive chairman Lord Mendelsohn has assembled a new senior management team led by CEO Per Widerström and chief financial officer Sean Wilkins to get the business on back on track.
Why 888 and Draftkings have seen diverging share prices
This follows an attempt by former Entain (ENT) chief Kenny Alexander, chairman Lee Feldman and Stephen Morana to install themselves as CEO, chairman and chief financial officer respectively after building a circa 7% stake in 888.
DEAL RATIONALE
According to a person familiar with Playtech’s thinking, the idea would be to combine 888’s brands with Snaitech and divest the business-to-business unit.
In addition, Playtech is thought to have identified up to £170 million of cost savings.
Jefferies, which has a buy rating on 888, estimates the potential cost savings would add more than 20% to the combined companies’ EBITDA (earnings before interest, tax, depreciation, and amortisation).
Using Jefferies current EBITDA estimates implies a combined circa £780m for fiscal 2024 estimates comprised of £392 million for 888 and around £391 million for Playtech.
‘Note our estimates show net debt to EBITDA falling from 5.6x at the end of FY23E to 3.5x by the end of FY25E, mainly due to the growth of EBITDA associated with the benefits of the William Hill acquisition and integration,’ Jefferies added.
Following the profit warning on 28 September, 888 maintained its target of more than £2 billion of revenue in 2025 and earnings per share of 25p while reducing net debt to EBITDA to under 3.5 times.
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