888’s purchase of William Hill’s non-US business will now be completed at a reduced price to reflect a shift in macro-economic factors and the looming threat of regulatory action.
The overall transaction, which has been cut from £2.2bn to between £1.95bn and £2.05bn, is now set to complete in June 2022 following a shareholder vote in May.
This is primarily because 888 has negotiated a £250m discount on its payment to William Hill’s current owner Caesars Entertainment on completion, from £834.9m to £584.9m.
Caesars is however entitled to receive a deferred payment of up to £100m dependent on 888’s EBITDA performance for the 12-month period ending 31 December 2023. The operator must generate EBITDA of £428m or more if Caesars is to receive the full £100m.
Pay the penalty
888 said the new price would better reflect the change in both the macroeconomic and regulatory environment since the acquisition was originally announced in September 2021.
Crucially, the company has today highlighted an imminent compliance threat to William Hill in the shape of enforcement action from the Gambling Commission.
The regulator is conducting an ongoing licence review into William Hill after it raised questions over social responsibility and anti-money laundering procedures following compliance assessments in July and August of last year.
However, 888 will be indemnified against the outcome of the review, with Caesars set to cover the cost if the investigation ends in licence suspension or licensing conditions for William Hill or its related subsidiaries, including Mr Green, post-completion of the deal.
Caesars will accept liability for any licence suspension imposed by the Gambling Commission as long as it does not exceed £152m, while any licence conditions will be covered below £78m.
Raising the stakes
888 will also conduct a placing of up to 70.8 million new ordinary shares in the company, representing approximately 19% of its overall capital.
The placing will be launched immediately and the net proceeds will be used to partially fund the acquisition of William Hill at the newly reduced price.
This is welcome news for investors, as it means 888 will no longer need to conduct the previously announced share rights issue it sought to raise £500m of gross proceeds.
To fund the rest of the transaction, 888 has committed to debt financing from J.P. Morgan, Morgan Stanley, Mediobanca and Barclays Bank of approximately £2.1bn, as well as a fully committed revolving credit facility of £150m.
Peel Hunt analyst Ivor Jones said: “888 has chipped the price it will pay for William Hill and reduced the initial cash consideration required, such that the equity issue is reduced in scale to a placing.
“We are positive about the potential benefits of this transformation of 888 and management’s ability to realise those benefits. We reiterate our 600p target price and Buy recommendation,” he added.
Providing a trading update for Q1 2022, 888 said revenue was expected to be between £222m and £226m with a more detailed synopsis to come later in the month.
In the 52-week period ending 28 December 2021, William Hill revenue came in at £1.24bn and adjusted EBITDA reached £164.4m.
Regulus Partners analyst Paul Leyland said: “We continue to see the 888-WH deal as highly attractive, increased debt levels notwithstanding.
“However, the need to reinvent UK retail might be more pressing than is broadly recognised given the sluggish return to pre-pandemic levels of activity on an ‘LfL’ basis despite massive cuts in supply (ie, the market is far from ‘LfL’).
“The digital synergies, betting-led brand exposure, enhanced localisation, and emerging omnichannel potential can all provide powerful strategic growth options for 888, but the revised terms nevertheless demonstrates that the post-pandemic world is not without risk,” he added.