William Hill 's (WMH) bid to take control of Sportingbet (SBT) has moved a step closer after the two companies, along with GVC (GVC), agreed the rough outline of a potential deal which forms the basis for further negotiations. The agreement means the Takeover Panel has extended its offer deadline to 13 November, which will allow GVC to complete the due diligence on the parts of the Sportingbet business it intends to buy. It looks as though Sportingbet shareholders could be in for a good deal if William and GVC come good with the 61.1p-a-share proposal, valuing the company at £530m, with William Hill stumping up perhaps £400m in cash.
There are some questions over whether William Hill can accept the revised offer without substantial amendments, but the general consensus is that the parties should be able to reach an agreement on the terms offered. If that is, indeed, the case, then the spotlight will turn quickly to what happens to William Hill's joint venture with Playtech (PTEC). The option to buy out Playtech falls due at the end of this year and William Hill's trading statement on 19 October is expected to confirm that the company will exercise its option. If no agreement can be reached between the two companies, and previous legal spats suggest finding common ground will be difficult, then a commission of banks will value the business. A price tag of between £400m and £550m seems likely given the astonishing success of William Hill Online, which has consistently led the rest of the industry in terms of sales growth.
The issue for investors in William Hill is that the size of these deals makes the possibility of a new rights issue a racing certainty, just three years after it raised £350m to repair a stretched balance sheet. Using a mix of debt and equity to fund both deals is risky, but William Hill could probably raise a similar amount this time and secure both deals using its committed £550m revolving credit facilities. Fortunately, the bulk of Hill's debt won't need to be paid back until 2015 and Sportingbet and William Hill Online are both highly cash-generative.
