888 strikes “transformational” £2.2bn deal for William Hill International business

888 has agreed a £2.2bn deal to acquire William Hill International from Caesars Entertainment in a combination that will generate pre-tax cost synergies of £100m annually by 2025, according to the operator.

In a statement, 888 said the enlarged group would benefit from clear scale advantage, as well as strong product and geographic diversification as a result of the deal.

“With a focus on regulated markets, it will be able to offer customers world-class products, supported by leading betting and gaming brands, driving sustained growth and shareholder value creation over the medium and long-term,” the firm added.

The deal brings the combined group’s regulated market exposure up to 86%, with a total combined workforce of more than 12,000 employees.

Increased scale and the chance to leverage the “complementary” strengths of both businesses were highlighted by 888 as strong motivators for the purchase.

888 has said it will gain “significantly enhanced” exposure to sports betting through the acquisition of William Hill, especially in the UK where the brand has significant cut-through due to its heritage, legacy and land-based footprint.

To fund the acquisition, 888 has acquired £2.2bn in debt financing from investment banks JP Morgan, Morgan Stanley and Mediobanca, including £1.6bn in term loans and £500m in bridging loans and senior secured credit notes.

The firm has also obtained a revolving credit facility of £150m.

In addition, 888 will conduct a £500m capital raising exercise via a share rights issue, the ultimate aim of which is to create a “more beneficial” long-term capital structure for the business.

Support to make the acquisition, along with the financial changes has been confirmed as having been received from The Dalia Shaked Trust, 888’s largest shareholder with a 23% stake, has offered its unconditional support for the acquisition.

The firm has gained further backing from shareholders amounting to 24% of 888’s issued share capital, including Aberdeen Standard Investments, the firm’s largest institutional shareholder.

The 888 board of directors have also given their assent to the deal.

Pending regulatory approval, the purchase is expected to complete in the first half of 2022.

The multi-billion-pound deal includes William Hill International, Mr Green and Redbet, as well as the firm’s UK retail portfolio, which analysts predicted it would offload due to its lack of land-based expertise and as a strategy to claim back some of the debt financing via a quick cash sale.

However, 888 has since talked up the “attractive” omni-channel opportunity in the UK as the shops could serve as a “highly cost-efficient” source of first-time depositors.

888 CEO Itai Pazner hailed the £2.2bn deal as a “transformational and hugely exciting” moment in 888’s history.

He said: “William Hill is an iconic sports brand, making it the ideal complement to 888, one of the leading global online gaming brands.

“Our strategies are also complementary, being digitally led, customer-focused, and committed to player protection and raising industry standards around safer gambling.

“We are also excited about the opportunities that the retail business provides and see significant brand benefits to the enlarged group from its large estate,” he concluded.

Peel Hunt analyst Ivor Jones suggested the strategic rationale behind the deal “stacks up”, including because of the £100m synergies and potential long-term share growth for shareholders.

However, Jones questioned retaining Hills’ UK real estate portfolio as a potential handicap for growth.

“We intend to review our price target after the 10am meeting but any potential increase is likely to be moderated by the overhang of the equity issue,” Jones explained.

“If 888 could agree the sale of the shops and eliminate the equity issue, we would expect the share price to step up,” Jones added.

Regulus Partners analyst Paul Leyland also welcomed the deal, citing “strong logic” behind the acquisition.

However, he wrote: “While the strategy is compelling, execution will be the big test, especially since neither company has a great M&A track record (WH bought and largely destroyed Sportingbet’s Australian business, MRG was a regulatory melting ice cream, 888 mostly bought struggling versions of itself).

“Further, the recent momentum seen in the UK by both 888 and WH means that there is something positive to mess up.

“For Caesars, offloading the WHI assets for £2.2bn means that it paid a net £1bn for the US business. Given the need for strategic freedom on what will be a key battleground product for Caesars regardless of the revenue footprint, this seems a win-win deal at a highly attractive headline price,” Leyland added.

888’s share price slid by around 1% in early trading on the London Stock Exchange.