The much anticipated takeover offer for William Hill (WMH) from rivals 888 (888) and Rank Group (RNK) was made public on Tuesday, leaving the former's investors and board distinctly underwhelmed. The deal, which would be effected through an all-share merger of 888 and Rank making a cash and shares offer valuing William Hill at 364p a share, or £3.1bn plus debt, was rapidly dismissed by the target's board for "substantially" undervaluing the company.
Now, you would expect William Hill to say that, even if only to elicit a higher offer, but the share price reaction spoke volumes for the mood of investors. Normally in such circumstances, traders would bid up the target's shares, especially if they expected a higher offer to be forthcoming. But the bookie's shares barely budged when the offer was made public and actually dipped 2 per cent to 322p on Wednesday.
This could reflect a lack of confidence among investors that the deal will be consummated. Indeed, the structure of the deal is complicated and relies on a theoretical value for the shares in the merged BidCo as well as a hefty chunk of debt.
Consolidation has dominated the gambling sector in the past two years as the costs of regulation have risen – indeed, William Hill tried to buy 888 last year. The former has suffered a turbulent 12 months in which its digital business has stumbled, prompting the recent departure of its chief executive. But it recently acquired Grand Parade to beef up its online presence and has expanded geographically, especially in Australia. A tie-up with 888 would enhance its online presence but there are less obvious benefits to Rank's inclusion in any deal. Analysts at Shore Capital estimate a three-way tie-up could generate £100m in synergies.
