William Hill has acquired affiliates and assets from Playtech Ltd. in a deal that sees the United Kingdom bookmaker significantly expand the breadth of its recovering online gaming business.
"Our future, as I keep saying, is in betting and gaming," Ralph J. Topping, chief executive of William Hill, said emphatically at a presentation for analysts this morning in London. "Which means that if the future is going to be happy, our online gaming offer has to be good -- ours wasn't good enough across the piece."
Hills' struggles online are well documented. The Internet-technology fiasco that was Next Generation -- the company's proprietary sports betting software development project -- was scrapped in January 2007 for a combined loss of £26 million.
"With William Hill Interactive" -- the company's e-gaming division -- "we had brand, we had betting experience, we had established U.K. customers and established profits -- we were well-respected, we were trusted," Mr. Topping said. "But if we were honest with ourselves, our e-gaming capacity was marginal."
Following on from Hills' high-profile deal with Orbis Technology Ltd. earlier this year to resuscitate its online sports book -- particularly its in-running capabilities -- Mr. Topping has paired his company with Playtech, the world's largest listed gambling software developer by market capitalization. Mr. Topping, whose career with William Hill spans nearly 40 years, went on to call the deal "transformational."
The transaction is byzantine and the product of five months' worth of negotiations between the two companies.
For Playtech, a recent stream of acquisition rumors was put to rest with the proposed $250 million purchase of two of its affiliates, Uniplay International Ltd. and Six Digits Trading Ltd. Uniplay and Six Digits -- which, among other activities, conduct affiliate marketing and render customer service -- are controlled by Teddy Sagi, Playtech's founder and largest beneficial shareholder.
Once the affiliates' acquisition is complete, Playtech is to sell immediately the majority of its interest in them to William Hill -- this in exchange for a 29 percent share in the newly created joint entity, William Hill Online. William Hill, therefore, will hold a 71 percent stake in the company.
Also announced today was a software-licensing agreement, which sees Playtech supply its poker and casino platform to William Hill from January 2009. While William Hill has one year remaining of non-exclusivity on its contract with CryptoLogic Ltd., Playtech will be offering its software to Hills on an exclusive basis from 2010.
William Hill Online, however, would conceivably generate a conflict of interest between Playtech and other of its clients against whom William Hill competes. Avigur Zmora, a non-executive director of Playtech, who, formerly, was the company's chief executive, said at tdoay's presentation that the company worked hard to ensure that it is a "passive shareholder."
"Since it's a passive investment, we believe that we will be able to do as we have done so far and provide the same level of service to all our licensees going forward," he said. "I won’t say our licensees are necessarily in love with this transaction, but I’m sure everybody will understand that we will have a huge upside as far as financials are concerned."
Perhaps of greatest import to William Hill on this deal is the international expansion of its online arm. William Hill Interactive, according to today's presentation, generated 90 percent of net revenue from the United Kingdom; under William Hill Online, however, it is expected the United Kingdom will account for a more balanced 67 percent of net revenue.
As part of the deal, William Hill retains the right to buy out Playtech's interest in four years and again in six. Hills' pro forma 2008 estimate for William Hill Online puts net revenue at approximately $328.7 million and earnings before interest, taxes and amortization at $129.8 million.
In the markets today, shares in William Hill jumped 23 pence, or 13.81 percent, to 189.50 pence. Platyech, however, was largely flat, gaining 14 pence, or 3.83 percent, to 380 pence.
Asked about the stubbornness of Playtech's share price, Andrew P. Lee, an analyst with Dresdner Kleinwort in London, told IGamingNews: "The market simply doesn't understand the extent of the synergies that are available to these online gambling companies when they do M&A -- they just don't get it. There's plenty of opportunities being missed here."
An earlier bout of forced selling by Toscafund Asset Management, one of Playtech's largest shareholders, was also rumored today to be keeping Playtech's value down, sources said. Toscafund's largest hedge fund, the $3.5 billion Tosca Fund, fell by 35 percent in September.
Henry Birch, the former chief executive of Leisure & Gaming has been appointed chief executive of William Hill Online.
Click here to view Playtech's announcement to the London Stock Exchange.
Click here to view William Hill's announcement to the London Stock Exchange.
Click here to view today's presentation by William Hill to analysts.
Click here to view a Webcast of today's presentation by William Hill to analysts.