The failure of Ladbrokes (LAD) to close a takeover of Sportingbet (SBT) last year looks to be a winner for bitter rival William Hill (WMH) if takeover talks for the online betting company, in conjunction with GVC (GVC), proceed without provoking a bidding war. William Hill's move comes as a surprise, as the bookmaker had been expected to hoard its cash in advance of buying software company Playtech (PTEC) out of its William Hill Online joint venture, although there are differing views on this.
Analysts believe that Sportingbet's Australian operations would add about £35m of cash profits before potential cost savings are taken into account; an offer of about 10 times this amount is thought to be a fair valuation for the division. Along with other regulated businesses and potential cost savings of about £10m, this would mean William Hill paying around £520m in cash, with about £90m of GVC equity making up the balance of the deal, according to Peel Hunt analysts.
Buying up Sportingbet's regulated operations in Australia adds extra impetus to the debate on what William Hill will now do with Playtech. There are three options open to management. First, William Hill can make an offer in November for Playtech's share, although a fundraising to achieve this would be needed. Second, it can delay a decision on the Playtech joint venture until October 2013 when the next option date falls. Third, Sportingbet could allow the company to reduce its reliance on William Hill Online, as moving into Australia would bump the share of profits generated by online ventures to 50 per cent of the total.
The company getting the best of the deal is probably GVC, which had results out last week, as a successful bid would mean it no longer needs to pay the earn-out fees for Sportingbet's Turkish operations, which it acquired last year in a £125m deal; GVC is risking equity rather than cash for Sportingbet's unregulated businesses, which had always proven to be a barrier to takeovers by regulated bookmakers.
