Gambling industry’s big names have embarked on a risky consolidation voyage that has changed the sector’s outlook in a manner and with a speed never seen before. Last summer, there were three pairs of major gambling operators to initiate merger and acquisition deals. Two of the deals in question were closed earlier this year and the third is expected to be completed any moment now.
As it became clear last weekend, another potential tie-up between industry giants could be on the horizon. Major UK bookmaker William Hill and Canadian online gambling operator Amaya, best known as the owner of PokerStars, confirmed that they were considering a £4.6-billion merger that would result in the creation of a cross-border gambling powerhouse with omni-channel presence in multiple jurisdictions.
Will there be another multi-billion marriage within the industry? Will William Hill and Amaya combine their operations for a much-hoped-for “happily ever after?” Will a combination between two companies with serious problems of different essence to overcome will prove to be a successful and worthy endeavor? Multiple polar answers can be provided to these questions. However, it is yet to become clear whether the merger talks will result in a deal being completed and whether the merger will create a profitable company or an operator with huge capabilities but inability to leverage on these for one reason or another.
As already mentioned, William Hill and Amaya confirmed merger talks last week. It is important to note that the two companies put special emphasis on the fact that discussions may not end up in a deal being closed. Their Boards are currently reviewing the potential of such a move and the benefits it would bring to all involved parties. If they agree on a deal eventually, it would be an all-share merger of equals. Valued at approximately £4.6 billion, the combined entity would be listed on the London Stock Exchange.
A deal of this scale will certainly have a great impact on all involved parties. In fact, a deal of this scale possesses everything needed to change the gambling industry’s overall landscape. Although it could not be said with complete certainty what exactly the deal would mean for William Hill and Amaya, predictions can be made based on each of the two operator’s current state.
Benefits William Hill and Amaya Could Reap from a Merger
William Hill currently operates UK’s largest chain of betting shops, although it will soon be replaced by Ladbrokes-Coral’s combined entity. The latter two operators are slated to close their merger deal any moment now.
To put it otherwise, William Hill is a company with well-established retail traditions. With online gambling growing so rapidly, the gambling operator has been trying to somehow boost its Internet business. However, this has proved to be a bit difficult for William Hill. In March, the company posted a full-year profit warning, saying that profits would probably not meet original expectations. As a result from its online division’s poor performance, the gambling operator now expects annual profit of between £260-280 million. With that said, William Hill could certainly learn a lesson or two from its potential partner on how to operate a profitable Internet gambling business.
Amaya specializes in the provision of online gambling services. In 2014, the company purchased online poker brands PokerStars and Full Tilt in an unprecedented for the sector deal valued at $4.9 billion. Online poker has become a core segment for Amaya, one the company has been ruling since acquiring the above-mentioned two poker websites. However, earlier this year, the Canadian operator made its first foray into the online sports betting sector.
Amaya has been trying to establish the BetStars brand but it should be said that the competition in that field is much fiercer. Precious pieces of advice from a leader with much better knowledge of the sports betting segment will certainly be of much help to the gambling company.
Exchanging information about fields the two companies have little experience in will not be the only way in which William Hill are expected to benefit from each other. From a financial point of view, analysts have estimated that a potential merger would result in cost savings of more than £100 million.
What is more, both gambling operators will extend their presence in different jurisdictions considerably. Yet, here it is important to note that William Hill will gain greater exposure to unregulated markets, something the company has been avoiding for years now. In fact, such exposure may turn into a good reason for the company’s Board to decide against a merger.
What Else Could Hamper a William Hill-Amaya Tie-Up?
Although no merger deal is bed of roses, a William Hill-Amaya merger may bring fewer roses for the involved parties than they might wish for. As previously mentioned, both companies have difficulties to overcome. These might seriously affect their Boards in deciding whether a tie-up would be the best for each of them.
It was just two months ago when William Hill rebuffed a £3-billion-plus bid from The Rank Group and 888 Holdings, with Chairman Gareth Davis saying that he could not engage into a deal that was “based on risk, debt, and hope.” Oddly enough, the operator’s Board is now considering one such deal. A tie-up with Amaya would burden the gambling company with additional net debt. Amaya posted net debt of more than C$2.5 billion in its second-quarter financial report.
Recent reports that the UK government may initiate a crackdown on fixed-odds betting machines could turn into another serious obstacle in the discussed merger’s completion. Located across betting shops in the UK, the gambling devices are major revenue driver for local bookmakers. According to media reports, a change in the regulations concerning FOBTs may result in Amaya stepping back from the deal.
The Canadian gambling operator may enter the merger facing a $870-million fine imposed by the state of Kentucky. Amaya’s PokerStars is sued by the state for illicitly providing online poker options to residents, even though federal and state laws strictly prohibited that. Although Amaya had not owned the online poker room at the time the alleged activities had taken place, there is a serious chance that the company may be burdened with the penalty. It is not clear whether William Hill would like to tie up with a partner with such a heavy load.
Last but not least, it was reported earlier today that Parvus Asset Management Europe Ltd. was strongly against a merger between William Hill and Amaya. The privately owned hedge fund sponsor is the UK gambling operator’s largest investor with a £370-million investment in it, which represents 14.3% of the company’s outstanding shares.
Parvus said in an open letter to William Hill’s Board that a tie-up with Amaya would be one with “limited strategic logic” that would destroy the UK bookmaker’s shareholder value. According to the investor, the Board should consider other options that would maximize value for shareholders. A sale of the gambling operator was one of the options suggested by Parvus.
Even though William Hill will be given access to PokerStars’ 100-million player base, the operator is not expected to benefit significantly from the merger as online poker is not such an attractive market segment, the letter read. Parvus further noted that the UK bookmaker’s long-term strategic position will be seriously weakened, if it joins forces with its Canadian counterpart.
Conclusion
William Hill and Amaya are both in that pesky situation where they should take a certain amount of risk but they should evaluate carefully the amount of risk they can endure. A tie-up between the two companies may create a gambling powerhouse with operations in key markets, with diverse portfolio, and with huge gambling customer base. However, the deal may result in two big companies combining their big issues and turning them into even bigger issues.
