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William Hill could push through the pack if its mooted £4.6bn merger clears the hurdle

The UK bookie has been the main laggard in the acquisition race but a proposed tie-up with Canada's Amaya could help it push through the pack
October 10, 2016

Bookie William Hill 's (WMH) proposed £4.6bn merger with Canadian rival Amaya will see it catch up with peers in the race to scale up to deal with the prospect of increased regulatory pressures.

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Although management suggested it would go it alone after dismissing an approach from online gambler 888 (888) and bingo-focused Rank Group (RNK), it is now in discussions over a reverse takeover of its larger overseas rival. The FTSE-250 listed company was notably absent from the recent round of mergers which saw many of its competitors pair together to better deal with increased taxation in the UK via the point of consumption tax and machine games duty.

There are also fears new prime minister Theresa May could have the sector in her sights with recent reports suggesting a ban on daytime TV advertising and a reduction in maximum stakes allowed on gaming machines. The latter would have a particular impact on William Hill given its large retail estate, which is heavily reliant on the income generated from machines.

But a deal with Amaya, which owns the world's largest online poker business in Pokerstars, would mean William Hill would grow the proportion of sales which come from online to 60 per cent, thus partly mitigating any potential squeeze on gaming machines.

It would also push non-UK exposure to 40 per cent, according to analysts at Davy, something the group has been trying to achieve.

This would come at a cost though. The leverage required to fund the deal would push the combined group's borrowings to 3.6-3.8 times net debt/cash profits, according to research by the stockbrokers Davy, which is above the level the board has historically been comfortable with.

And it would increase William Hill's exposure to unregulated markets from 4 per cent to nearly a quarter of revenue, Davy said. The proportion of profit coming from such destinations would be higher given the inflated profit margins on business in these jurisdictions.

The deal could provide a stabilising effect for William Hill, which is still without a full-time chief executive after James Henderson suddenly stood down in the summer.

Shares in William Hill have also fallen in the past year, compared with strong rises in rivals Ladbrokes (LAD) and GVC (GVC), where acquisitions have been successful.