Takeover rejection cranks-up pressure on William Hill board
Refusal to engage with suitors also seen as a sign of confidence but results must quickly follow
William Hill will always be a firm under pressure to deliver – most listed companies are, particularly those of William Hill’s size and stature. Yet the firm may well find itself under scrutiny like never before following its rather robust dismissal of a three-way tie-up with 888 Holdings and The Rank Group.
While the majority of observers appear to agree with Hills’ assertion that the proposals put forward by the consortium were both risky and light on cash, it was the refusal to even enter into discussions which some found baffling.
“Absolutely foolish,” one former Hills staffer says. “OK, the deal might not have been quite there but the offer was getting closer to what you might expect and money talks. To not entertain a discussion⦠I think they thought Rank and 888 were beneath them,” he adds, echoing the thoughts of 888 shareholder Eyal Shaked.
The Hills’ board, led by chairman Gareth Davies, was nothing if unambiguous in its rejection of the combination proposals. “In all my years in the industry, this is the first time I’ve ever seen such an ill-conceived offer,” Davies was quoted in The Financial Times, as saying.
“They’re using our balance sheet to buy us. We don’t see the merits in engaging with it [the bid]. The paucity of the premium alone is enough for them to not get a foot in the door. They’re not at the wrong door â they’re in the wrong postcode.”
Raising the stakes
That’s fighting talk and some believe Hills’ resistance to enter into dialogue has upped the ante. “They have just massively increased the pressure on themselves,” one senior exec says. “The retail division is performing well but if they don’t turn the online business around in the next six months then some serious questions will have to be asked.”
Paul Leyland of Regulus Partners agrees the firm now needs to raise its game considerably if history is to reflect well on the board’s decision to rebuff 888 and Rank.
“William Hill’s board must now grow EBITDA significantly to justify turning down a rating offered which had arguably become at the upper end of generous given the regulatory, channel and operational risks inherent in the standalone business,” he says.
However, some are reading into Davies’ adversarial language as a sign the firm has been buoyed by an improvement in online performance since the Euros. The firm last week said it had enjoyed “a good start to the second half of the year” and revised full-year operating profit up to “the top end” of its previously guided £260-280m range.
William Hill’s share price has since rallied, up to 320p at the time of writing from 302p on Thursday when the consortium pulled the plug on its attempts to create the UK’s largest multi-channel operator.
“To have rejected an offer around 40% higher than the current share price, we argue that William Hill must be comfortable with the underlying progress of the company,” Deutsche Bank said in analyst note. “As we anticipated, William Hill has re-comforted the market on numbers, and online progress.”
Nowhere to hide
Through a determination to go it alone, Hills has nailed its colours to the mast. Interim CEO Philip Bowcock insists the firm has sufficient scale to compete in a consolidating UK market with an online turnaround strategy based on improving product, trimming costs and expanding internationally.
Part of its plan will be to install a new CEO. With Bowcock currently occupying the chair, some analysts believe improved results may see him given the job on a permanent basis. However, Davies only last month said his preference was for someone with digital gaming experience and a history of successful international expansion, achievements absent on Bowcock’s CV.
The chairman says a new man or woman might still be 12 months away, with candidates likely to be locked into non-compete agreements with current employers. And the pressure will be on the board to get this appointment right. The promotion of the now departed James Henderson to many was viewed as a mistake â even if some formed this opinion with hindsight â and one which can’t be repeated.
All of which means eyes will be on Hills over the next 6-12 months more than ever. It could be argued the heavy lifting has been done with the well-intended but badly executed Project Trafalgar now having its screws tightened, while its Australia overhaul, which was always going to be a long-term play, is beginning to bear fruit under the astute leadership of Tom Waterhouse.
William Hill remains a UK powerhouse and with major rivals Paddy Power, Ladbrokes and Coral likely to feel some effects from mergers, a reenergised and refocused Hills could well be in line to profit. But this only underlines the fact we have entered a crucial period for the operator â a quick turnaround is essential or it may well be in danger of missing the boat.