The gambling sector has witnessed another failed attempt at consolidation as 888 (888) announces its takeover talks with rival William Hill (WMH) have been terminated. Shares in 888 plunge 14% to 147p on the news, having spiked 28% to 185.7p on 10 February when it confirmed the acquisition rumours.
The £605 million cap says the talks have failed because of ‘a significant difference of opinion on value with a key stakeholder’. William Hill’s offer was 200p per share plus a 3p dividend per share, valuing the group at more than £720 million. Reports suggest one of the shareholders was pushing for 300p.
The deal was always going to be a difficult one to get shareholder approval for. Two families control almost 60% of 888’s shares and they have a history of blocking bid approaches due to aspirational valuations – as with the rejection of Ladbrokes’ (LAD) bid in 2011.
The approach for 888 followed months of speculation about consolidation in the online gambling sector after Bwin.party (BPTY) announced in November it was in merger talks with a number of parties including Amaya (AYA:TSE), William Hill and Playtech (PTEC). Bwin.party’s shares fell 21% on Friday which, according to Dealreporter, was due to potential suitors losing interest in acquiring the company.
Simon Davies, head of European research at Canaccord Genuity, says there is resounding logic to online gaming industry consolidation given the drive for economies of scale against a backdrop of rising regulatory costs and taxes.
‘However [the 888] deal always looked to have a low probability of success, given unregulated market exposure and controlling shareholders that had resisted previous approaches,’ he says. 888’s shares are trading on a 2015 price to earnings ratio of 21.4 times which looks rich given the group’s high exposure to unregulated markets.
Canaccord Genuity lowers its target price from 172p to 164p to remove the 25% probability of a successful bid.